Thursday, April 19, 2007

Alberta Budget

Today at 3:30PM Alberta's Budget will be released.

Here is a blog exclusive op-ed that I wrote as a pre-budget piece, but it is starting to get a bit dated now that some potential spending numbers are being leaked.

Anyway, here it is:

Stelmach softening us up for another big spending budget
By Scott Hennig, Alberta Director
Canadian Taxpayers Federation

It could have been the environment. It could have been terrorism. But it’s not. No, this year it appears “growth” has been picked as the reason the government has “no choice” but to put forward yet another large increase in provincial spending.

During his recent Edmonton Premier’s Dinner, Stelmach suggested “there is a price to prosperity, a substantial price, as you will see.”

This not-so-subtle hint of a “substantial” hike in budget spending was likely devised to soften up PC Party members, the media and taxpayers.

How big an increase we won’t know until this Thursday, but if Premier Stelmach’s team felt it was necessary to forewarn Albertans of a spending increase, it must be large – very large.

But is it warranted?

There’s no question Alberta’s economy is growing at a faster pace than the rest of the country. There’s no question Alberta’s population is growing faster and our inflation rate is higher than any other province in Canada. But does it warrant a 10 per cent, 11 per cent or 12 per cent increase in spending this budget?

The numbers say no.

The Canadian Taxpayers Federation (CTF) has long been arguing the Alberta government (one of the largest per capita spenders in Canada) should be limited to increase program spending by no more than the combined growth rate of population and inflation.

The CTF recommends this because it not only reflects the growth in the economy (and costs), but also the expected growth in sustainable tax revenues. If the population goes up by 2 per cent, tax revenue should also go up by 2 per cent. If inflation grows by 3 per cent, wages and therefore income tax revenues should go up by 3 per cent as well.

If spending increases are larger than sustainable tax revenue increases, governments have to find other sources of financing. In 80s and early 90s the government relied on debt to cover the shortfall. Today, they’re using resource revenues.

Of the expected $11.7 billion in non-renewable resource revenues collected by the Alberta government in 2006-07, $11.1 billion of it is either already spent or soon to be spent. If oil and gas prices drop, Alberta would be forced to cut spending, dip into savings or raise taxes to make up the difference: good reasons to limit government spending increases to the combined population and inflation growth rate.

Yet, during its last few years, the Klein government continued to increase spending by significantly more than this rate.

The year previous to Budget 2003, the combined inflation and population growth rate was 6.6 per cent. The government increased spending in Budget 2003 by 9.5 per cent. For Budget 2004, the combined rate was 4.2 per cent, yet spending was increased by 9.6 per cent. For Budget 2005, the combined rate was 3.1 per cent, yet spending was increased by a mind-boggling 14.6 per cent. For last year’s Budget 2006, the combined rate was 4.8 per cent, yet spending was increased by 9.9 per cent.

Looking back over the growth in the economy in Alberta over the past year (and you have to look back to last year because you can’t make a budget on growth rates that haven’t yet been established) Alberta’s population has grown by approximately 3 per cent, and Alberta’s inflation rate has averaged about 4 per cent growth.

The Canadian Taxpayers Federation calculates the Alberta government will be justified in increasing program spending by 6.8 per cent in Budget 2007 based on current growth.

Unfortunately, thanks to the none-too-subtle of a hint given to us by Premier Stelmach, the chances of a 6.8 per cent growth in spending are starting to look quite slim. And even more unfortunate, it’s looking less and less likely this “new” government will be any different from the old government when it comes to spending increases.

Check out tomorrow's Calgary Herald to read our reaction to today's provincial budget.

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