Alberta's budget depends on vagaries of oil markets.
by Ricardo Acuña for Vue Weekly
What a ridiculous way to run a province!
Albertans with a good political memory will remember the impact that the drafting of the 2011-2012 provincial budget had on Alberta politics in the late winter of 2011. Premier Stelmach wanted to present a budget with a projected $3.4 billion deficit. He was also ready to back-track on his promise to balance Alberta's books by the year 2012, saying he would need a couple of more years.
This plan was not well received by many in the Conservative caucus, who were already worried about the Premier's falling popularity and the rise of the Wildrose Party on their right flank. They knew this was potentially the last budget before a provincial election, and did not want it to carry a deficit at all, never mind one as large as $3.4 billion.
Contrary to the government’s assertion that the disappearing deficit was the result of “responsible decision-making,” the bottom line is that they got lucky.
The finance minister at the time, Ted Morton, made the decision to resign rather than present this budget in the legislature. Premier Stelmach caught wind of this pending resignation and the caucus revolt around him, and decided to pre-empt both by announcing his resignation before Ted Morton had a chance to. The budget was presented as planned, the Tories headed into a leadership race, Wildrose popularity soared and the stage was set for a dynamic and tumultuous year in provincial politics.
Now it turns out all that drama was for naught. Last week the provincial government released its annual report for the 2011-2012 fiscal year, and to everyone's surprise, the deficit that brought down a premier had all but disappeared. Instead of the projected $3.4 billion hole in the province's books, when all was said and done we finished the year with a deficit of only $23 million — a miniscule amount when you consider the size of the provincial budget.
At the news conference releasing the annual report Finance Minister Doug Horner presented this as a very good news story for the province. He didn't directly take credit, but it was clear he felt that at least some of the kudos for the positive financial outcomes should flow to his government.
In reality this should be anything but a good news story. Regardless of the final outcome, the bottom line is that the provincial government missed its budget by over $3.4 billion.
This should give us no sense of comfort or reason to celebrate. These are the folks we entrust to responsibly shepherd our resources toward the goods and services we depend on daily. How can they do that if they have no sense from year to year of how much money will actually be coming into their coffers?
As always, the biggest difference was non-renewable resource revenues. The budget was based on oil averaging $89.40 for the year and the actual average price for the year was $97.33. The government also sold more land at higher prices than originally projected. In other words, contrary to the government's assertion that this was the result of "responsible decision-making," the bottom line is that they got lucky. Three months into the current budget year, it looks like their luck may not hold.
The price of oil right now is hovering around the $85 mark. The budget for this year, with its projected $900 million deficit, is premised on an average price of oil $99.25. We may yet get that $3.4 billion deficit, just a year late.
Doug Horner defended his government's record by saying, "We have direct control over what we spend. We don't have direct control over oil prices or the royalty revenues that we're going to be bringing in." While it's true that the government doesn't control international oil prices, it's an irresponsible cop-out to suggest that the only thing they can control is spending. It also exposes an incredibly flawed style of governance.
A government's responsibility is to balance the provision of the services and infrastructure Albertans want and need with how much Albertans are willing to pay through taxes for those services and infrastructure. This government has entirely abandoned that responsibility, and instead bases its provision of services on the international price of a barrel of oil.
It's time to change that paradigm and move towards proper and responsible governance and budgeting. We need to reform our tax system to ensure that we are collecting enough to pay for the goods and services we need and want, and we need to be saving our natural resource revenues to ensure that our children and grandchildren can also benefit from our common natural wealth.
To do otherwise leads to volatility and an inability to determine from one year to the next what services we will be able to afford, and that's a truly ridiculous way to run a province.
About Ricardo Acuña
Ricardo Acuña is Executive Director of the Parkland Institute, a non-partisan public policy research institute housed at the University of Alberta.
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