Wednesday, April 21, 2021

Guest Opinion: Kenney should draw inspiration from Klein reforms and reduce spending quickly

Guest Opinion: Kenney should draw inspiration from Klein reforms and reduce spending quickly

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Again, the deficit was quickly eliminated, debt levels dropped, and debt-interest payments (as a share of revenue) fell from a high of about 11% in the mid-90s to nearly zero.

In other words, after balancing the budget and paying down debt, the province could focus spending on programs and services for Albertans rather than debt interest.

The fruits of the Klein reforms outlived the reform period itself.

The province ran a string of budget surpluses over the next 14 years.

And Alberta would become the only “debt-free” province in Canada for more than 15 years.

Today, Alberta faces a situation similar to the pre-reform era.

In the early 2000s, natural resource revenues climbed and governments fell back into the pattern of routinely increasing program spending beyond the level needed to account for inflation and population growth, and well beyond the pace of revenue growth.

Provincial government program spending is projected to reach $13,644 per Albertan in 2020/21 — about $6,200 more per person than during the Klein reform era (1996/97).

As in the past, budget deficits emerged when natural resource revenues fell.

Specifically, since 2007/08, Alberta has run budget deficits every year (excluding 2014/15).

With the added impact of COVID, Alberta now faces $63.5 billion in net debt.

A remarkable reversal in fiscal fortunes.

When the province emerges from the current recession, its fiscal challenges — which have been exacerbated over the past year — will be waiting.

Like the Klein government in the 1990s, the Kenney government must reduce spending to restore provincial finances, rather than hope for a strong resource revenue rebound, which may or may not occur.

Tegan Hill and Ben Eisen are policy analysts at the Fraser Institute.

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