Who's to blame for Alberta's debt problem?

It may have been only 20 years ago, but the early 21st century feels like a lifetime away for most Albertans right now. Back then, the last of the Don Getty-era debt was getting paid down, and with oil prices soaring (indeed, with credible worries that the world might run out), it looked like the province was set for decades of unparalleled prosperity.

That might help explain why, in July 2004, then-Premier Ralph Klein celebrated the moment — and, it turns out, tempted fate — by hoisting a “Paid in Full” sign above his head. “Never again,” Klein said, “will this government or the people of this province have to set aside another tax dollar on debt.”

Well, so much for that. The most recent budget from the government of Alberta included industrial-sized volumes of red ink, with debt expected to hit $115.8 billion by the end of the 2021-22 fiscal year. Some of that is due to the pandemic, but most is the result of poor planning and failed leadership by successive Alberta governments.

And no leader deserves more of the blame than Klein, whose choices helped paint Alberta into the corner in which it currently finds itself. After all, in the mid-2000s, he had the chance to put the province on truly sustainable financial footing, save tens of billions of dollars for the future and lock in a genuine advantage for generations to come. Instead, he decided to cut people a $400 cheque and fade into the political sunset.

Klein’s role in Alberta’s current predicament will come as a surprise to many conservatives, who would much rather blame either their NDP predecessors or the Liberal government in Ottawa for it. But according to data from a recent report from the Business Council of Alberta (BCA), Ralph Klein is the true author of Alberta’s fiscal misfortunes — especially, and perhaps most ironically, when it comes to the spending that conservatives like Jason Kenney talk about the most.

“Spending increases from 1999/00 to 2009/10 created a wedge between Alberta and other provinces, one that has persisted since,” the report notes. “At the beginning of that 10-year period, Alberta spent about $700 less per person than the average for the rest of Canada. By 2009/10, however, Alberta was spending $1,200 more per person.”

Much of that increase was driven by health-care spending, which nearly doubled in a decade from $2,600 per person to $4,700 per person. But according to the BCA’s report, those spending increases weren’t supported by underlying economic growth.

“While the economy was strong over that period, GDP growth was driven largely by an expanding population,” the report readshe wrote. “On a per capita basis, real GDP in Alberta grew by an average of just 0.4% per year — less than half the national average rate.”

Instead, Klein and his government were the beneficiaries of a massive rise in oil and natural gas prices, the latter of which was the real driver of the huge fiscal surpluses Alberta generated in the early and mid-2000s. And instead of saving Alberta’s increasingly massive non-renewable resource revenues for the future, as most economists (including perennial UCP favourite Jack Mintz) think is best and as Peter Lougheed recommended during the last major oil boom back in the 1970s, Klein decided to spend it on underwriting artificially low tax rates.

The so-called “Alberta advantage” those low rates created was advantageous for the Albertans of that particular time, but it effectively constituted borrowing from the future. Now, those debts are starting to come due — and Alberta is saddled with a government that, like its predecessors, remains terrified to do what it takes to pay them.

That includes bringing spending into line with other provinces, which could be done by holding public-sector wages flat and letting inflation do the heavy lifting. But the real roadblock is around revenue, where an eight per cent provincial sales tax would raise approximately $8 billion, of which nearly a billion would come from visitors to the province.

Together, these measures would allow the province to finally start saving what remains of its natural resource revenues, which are set to dwindle in the future as the world transitions away from oil and natural gas. Instead, Alberta has chosen to slash post-secondary spending, rack up more debt and hope commodity prices can rise high enough to bail it out — yet again.

Kenney and the UCP might get lucky here. If commodity prices really co-operate, they might even balance a budget before the next election. But that won’t repair the fiscal damage that’s been done over the last decade-plus or remove the burden it places on future generations.

And while those who benefited from the Klein era’s reckless policies may remember them fondly, the rest of us will be far less generous in our assessment. Now, it’s up to our current generation of politicians to make the hard choices that the last one wouldn’t — and make them before it’s too late.