Report urges Alberta to cut public sector spending ahead of budget

It turns out not everything’s bigger in Texas.

As Alberta braces for what will be a disappointing budget for one group or another, a new Fraser Institute report compares the Prairie province’s fiscal performance to the U.S. state with a very similar economic history.

While Alberta outperformed Texas on most economic indicators from 2000 to 2013, the same cannot be said for its bookkeeping, says Mark Milke, a senior fellow at the public policy think tank and author of the report.

“Alberta’s got a spending problem,” Milke tells Yahoo Canada News.

Oil and gas revenues fluctuate regularly, he says. Alberta shouldn’t bank on the boom years.

“If it had better controlled spending over the past decade, it would still be producing budget surpluses. Instead, it’s staring a lot of red ink in the face because it couldn’t control its spending.”

Oil and gas accounts for 26.8 per cent of Alberta’s gross domestic product. In Texas, it amounts to 11 per cent.

Both jurisdictions have seen relatively strong economic performance since 2000, though Alberta’s has been better, the report says.

The Prairie province has seen higher growth in gross domestic product, lower unemployment, a larger increase in private sector employment and a higher per-capita GDP.

Yet Alberta has posted deficit budgets every year since the 2008 recession and is facing another year in the red while Texas recorded only one year of deficit spending, says Milke.

He blames public sector spending.

Since 2000, Alberta’s per capita spending increased by 69.5 per cent compared with 59.5 per cent in Texas, his report says.

In that time, the province’s public sector employment grew 2.8 per cent annually, on average, while population has grown two per cent. In Texas, the public sector grew 1.1 per cent annually, on average, while the population grew almost two per cent.

“In Alberta there’s been a lot of political pandering to government employees’ unions,” says Milke, author of the book A Tale of Two Energy Booms.

The provincial finance minister’s office did not respond to a request for comment.

The government has hinted at spending cuts in Thursday’s budget.

It “will require tough, disciplined fiscal decisions to weather the current low price of oil while also protecting core services that Albertans require,” says a government website.

Members of the Canadian Union of Public Employees (CUPE) say it’s unfair to blame public sector workers for the Conservative government’s economic mismanagement.

Premier Jim Prentice and his government have sent conflicting signals, including Prentice’s decision to cancel planned pension reforms when he took office last fall, Milke says.

“We’ll see what he comes up with on Thursday but … the government needs to get a grasp on those costs,” he says. “Unless you want to tax people through the teeth, you can’t get to a balanced budget unless you deal with your spending side.”

The report does not examine Texas’s constitutional spending cap, which ties the amount of spending for about half the state budget to estimated economic growth.

Milke says a cap merits further study.

Jurisdictions that have legislated limits have better control over spending, he says.

“Absent that, all you’re left with is politicians, usually facing a couple hundred thousand public sector workers … and that’s a much more difficult beast to grapple with.”