The Fraser Institute

The Fraser Institute

August 01, 2012 08:32 ET

The Fraser Institute: Alberta Deficit Will Top $886M Budget Forecast

CALGARY, ALBERTA--(Marketwire - Aug. 1, 2012) - Alberta's deficit will likely exceed the government forecast of $886 million in 2012/13, concludes a new report from the Fraser Institute, Canada's leading public policy think-tank.

Mark Milke, Fraser Institute director of Alberta policy research and author of Alberta's 2012 Fiscal Time-Bomb, attributes the higher-than-expected deficit to unrealistic resource revenue and economic growth projections outlined in the government's February (pre-election) budget.

"The province has bet the budget on overly optimistic oil and gas prices. It also wished upon a star by hoping for economic growth, corporate profits, and personal income significantly above private-sector forecasts," Milke said.

"As a result, the provincial deficit in 2012/13 will be higher than expected and the province will continue its five-year fiscal decline."

A higher-than-forecast deficit means that the rapid decline in Alberta's net financial assets will continue. Milke notes that in just five years, the value of Alberta's net financial assets has dropped by over half, to $16.4 billion in 2011/12 from $34.1 billion in 2007/08, in inflation-adjusted dollars. This mimics a previous decline in the province's finances that began in the mid-1980s and lasted until 1994.

"Alberta's recession ended in mid-2009, yet the province has incurred deficits in every subsequent year and only forecasts a surplus as of 2013/14-five years after the recession ended," Milke said.

"The Alberta government is spending well beyond its current means and has been for some time, with per-capita spending hitting 1980s-style highs. It's time to reduce historically high levels of program spending to balance the books sooner rather than later."

To meet its $886 million deficit forecast for 2012/13, the Alberta government relied on GDP, corporate profit, and personal income forecasts that were significantly higher than private-sector estimates. Milke offers key comparisons:

  • Average private-sector forecast for GDP growth: 3.1 per cent in 2012 and 3.2 per cent in 2013; Alberta government forecast: 3.8 per cent in both years.

  • Average private-sector forecast for real personal income growth: 4.5 per cent in 2012 and 4.7 per cent in 2013; Alberta government forecast: 6.2 per cent growth in 2012 and 6.0 per cent in 2013.

  • Average private-sector forecast for growth in corporate profits: 2.3 per cent in 2012 and 6.2 per cent in 2013; Alberta government forecast: growth of 11.8 per cent in 2012 and 17.5 per cent in 2013.

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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 80 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.

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