Government should look inward to narrow budget gap

The following is AEG’s monthly column by AEG President Josh Bilyk appearing in the June edition of Business in Edmonton Magazine. If you have tips or suggestions for future columns, please feel free to write or call. 

The Alberta government deficit is huge. At $10.4 billion it’s so big, there is no single way address it. Everything should be on the table.

Businesses have stepped up to the plate by paying higher taxes than they have in years. Corporate taxes (for those still profitable enough to pay them) have increased 20 per cent, personal income taxes are up and next year a carbon tax will draw another $3 billion from the economy and will steadily rise every year after that.

With billions of dollars in new or increased taxes on the books, the government needs to look seriously at spending. Last year the government planned to increase spending by an average annual rate of 2.3 per cent in the coming years. Budget 2016 ratchets up the annual spending increases to 3.6 per cent.

The provincial debt is expected to rise from what was effectively zero a few years to $28.9 billion in three years. Before the next election, interest payments on that debt are expected to rise to $2 billion, or $1,860 per year for a family of four.

Alberta is one of the biggest-spending provinces in Canada, and has been for a while. Next door in British Columbia, the government spends $2,300 less per person on program spending that we do. If the Government of Alberta spent what British Columbia does, we’d be spending $9.5 billion less per year, which is just less than our anticipated budgeted deficit recently announced of $10.4B.

Alberta’s high-spending ways didn’t happen overnight, and certainly didn’t begin with the current NDP government. Government spending has steadily risen for more than 15 years. Of course, infrastructure demands to keep pace with a growing population was a significant cost driver. As the saying goes, those hundreds of thousands of new Albertans didn’t bring their roads and schools with them.

But there was also another factor at play. With resource royalty revenue rolling in at a record pace, it was easy for governments to say “yes” – especially at election time. Public sector salaries just kept rising. The government always said it needed to increase wages to prevent losing workers to the booming private sector.

Competition with the private sector might have been a factor, but a recent Fraser Institute study found that unionized government workers enjoyed a 6.9 per cent wage premium over their private sector counterparts in 2013. That same study also found that 77.7 per cent of government workers were covered by a registered retirement plan, compared to 21.8 per cent of private sector workers.

Another key area we need to take a look at is health spending in Alberta. Alberta continues to be one of the biggest spenders on healthcare in the country. But, as the Canadian Institute for Health Information (CIHI) has pointed out, one of the main determinants of public health expenditures is the age of the population. The older the population, the more you spend on health care.

Alberta, with one of the youngest populations spends more per person than almost every other province. CIHI estimates that, if you control for Alberta’s demographics, the province should spend 13 per cent less than it currently does – that amounts to around $2.5 billion per year.

Narrowing Alberta’s gap is going to require some tough choices, but all options need to be considered in order to get back to balance. Businesses are being asked to contribute more to government coffers while tightening their own belts. Now it’s time for government to follow suit and examine its own spending practices.

Alberta Enterprise Group is a member-based, non-profit business advocacy organization. AEG members employ more than 150,000 Canadians in all sectors of the economy.