The Fraser Institute

The Fraser Institute

October 23, 2013 08:15 ET

The Fraser Institute: Alberta Government's Chronic Over-Spending Reducing Value of Provincial Assets

CALGARY, ALBERTA--(Marketwired - Oct. 23, 2013) - Chronic deficits have helped slash the value of Alberta's net financial assets by 65 per cent - about $22.4 billion - in six years, according to a new study published today by The Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

This trend mimics the decline in Alberta's net financial assets during the late 1980s and early 1990s - the last time the province ran chronic deficits, according to the study, Alberta's Double-Dip Decline in Financial Assets.

"Provincial politicians, including in the present government, once bragged about Alberta's net financial assets. No more, as the continual red ink budgets have led to a steep decline in Alberta's wealth," said Mark Milke, the study's author and a Fraser Institute senior fellow.

"This downward trend will be exacerbated because of the province's plans to borrow ever-more money rather than address heightened per capita program spending levels that the province has only now begun to even tinker with."

The study highlights how Alberta's net financial assets declined to just $12.1 billion by 2012/13 from $34.5 billion in 2006/07. Moreover, that decline-calculated to just the end of March 2013- has yet to reflect any province-specific costs of relief for homeowners and business hit by flooding in southern Alberta in June 2013.

"Ironically, on the revenue side, Alberta's finances in the past decade were never hit as badly as they were in the 1980s but the province is nonetheless replicating the previous decline in Alberta's financial assets, this because of near-historic per capita highs on program spending," Milke said.

At present, per capita program spending is $10,564 for this fiscal year, which is up $2,861 from the year 2000 and $867 higher than 2006-2007 when royalty revenues were peaking. (Note: Arguments for higher program spending based on needed infrastructure spending misunderstand provincial program spending, as infrastructure is a separate "line item" in provincial budgets.)

More broadly, the current pattern repeats almost dollar for dollar the asset decline that the province suffered during the 1980s and 1990s, averaging just over $3.7 billion per year compared to just under $4 billion in the earlier period.

The reality of spending beyond the province's current means must be acknowledged and acted upon, Milke said.

Beyond commitments such as extraordinary flood costs, the province must recognize that every day per capita program spending is "significantly higher" than historic norms, notes Milke, adding that 'normal' per capita program spending must be restrained and pared sooner rather than later, and/or program spending held to a rate of growth below that of government revenues generally.

Much of the above-inflation, above-population growth in spending can be traced to the public sector, which has "swallowed" extra revenues available to the province, he added.

"If the province is to arrest the decline in its net financial assets, it must turn its attention to the wide public sector," he said.

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 86 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.

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