Fraser Institute slams Alberta government for squandering $22 billion windfall

A new report by the conservative Fraser Institute is confirming what a lot of Albertans already knew, the province squandered much of the windfall it received from high energy revenues in the last decade.

The report, which was released Tuesday, goes right to the bottom line in the title: Alberta's $22-billion Lost Opportunity. It concludes the government's failure to keep spending at the rate of inflation plus population growth from fiscal 2005 through the current fiscal year put the Alberta on course for the massive deficit it must tackle in next month's budget.

"A review of actual choices governments made shows a pattern of increased program spending well above the rate of inflation and population growth and as a result, a string of five consecutive deficits," says a synopsis of the report, authored by Mark Milke.

"In total, if Alberta’s governments had held program spending increases to the rate of inflation plus population growth since 2005, the province would have spent $22.1 billion less than it did.

[ Related: Alberta's Redford warns 'difficult' budget choices coming ]

"In the current year alone, program spending is $3.6 billion higher than it would have been if spending increases matched the rate of inflation plus population growth since 2005. Additionally, the province would have run a surplus budget in every budget year since, including during the 2008/09 recession."

Premier Alison Redford's Progressive Conservative government was blindsided when oil and gas revenue projections for this year fell short by up to $6 billion this year, in part due to sinking natural gas prices the discounted price its oil sands bitumen is getting due to a lack of pipeline capacity.

The new budget comes down on March 7 and Redford has warned to expect "very difficult choices."

Redford has blamed a short-term "bitumen bubble" for the shortfall but Milke said the problem has been obvious for some time.

“The province has been repeatedly warned by numerous economists about the hazards of budgeting based on boom-time revenues,” Milke told the Edmonton Journal. “As a result of ignoring this advice, Alberta is now in its fifth consecutive deficit year and about to produce its sixth red-ink budget.”

Alberta's been here before. Populist premier Ralph Klein was lionized for implementing harsh budget cuts after being elected in 1992, eliminating the province's $3-billion deficit and balancing the budget within three years after a decade of deficit spending amid stagnant oil prices. He also paid off the Alberta's $20-billion debt.

Milke pointed a finger at the high cost of public-sector compensation, which he noted in Ontario was estimated to be half of all government program spending.

[ Related: Quebec tops Fraser Institute’s healthcare rankings ]

“Assuming that labour costs also account for 50 per cent of Alberta government program spending, then it’s easy to see where costs are ballooning, especially in light of the generous wage settlements given to teachers and nurses and the government’s agreement in 2007 to assume responsibility for the remaining one-third liability in the Alberta Teachers’ Pension Plan,” Milke said in the Journal.

As the Redford government finalizes its budget, Milke recommends more disclosure of the cost of public-sector compensation relative to total spending, a review to bring it in line with salaries in the private sector, a freeze on overall spending growth and a commitment to hold future program spending to the rate of inflation plus population growth.