You Owe $60,000 – Welcome To Alberta’s Avoidable $100B Debt Crisis

Facebooktwittergoogle_plusredditpinterestlinkedintumblrmail

Last week the NDP Alberta Government introduced yet another budget without any cuts in it.  Instead they are relying on growth to balance the budget by 2023 leaving us with colossal debt of about $96B.

Citizens, including me, do not seem to grasp numbers larger than about $10M so some context is key to understanding.  To put that debt in perspective, there are just over 4 million people in Alberta, which makes YOUR personal portion of the Provincial debt $24,000.  Statistics Canada shows that Alberta averages 2.5 people per household.  This means your household will owe $60,000.

The Canadian Tax Payers Federation calculates that the Alberta’s debt is currently increasing at a rate of $315.80 per second.

Let’s contrast that number of other Provinces.

How Much Debt Do BC Citizens Owe?

Both the previous Liberal and current NDP governments in British Columbia have been on similar spending sprees and while certainly not as deep, BC has had many similar economic problems to Alberta in recent years.  Think about BC’s primary industries (Oil collapse, softwood lumber disutes…).  However, in February 2018 their NDP Finance minister announced:

“Government’s direct operating debt is projected to be eliminated in 2018-19, one year earlier than forecast. This will be the first time government has been direct operating debt-free in over 40 years.”

Governments like to split OPERATING DEBT (shortfall between what is being brought in and what is being spent, not including interest payments on previously acquired debt), from total debt (how much you actually owe) because it is easier to sell to citizens confused by pundits constantly yelling different facts and figures.  The simple fact is that just because you have stopped adding new charges to your credit card, you are NOT debt free.  You or your children will have to pay back the money.

But I digress, BC has 4.7 million people and is expected to top out their debt near $70B in 2019/2020.  That makes BC citizens liability for about $15000/person or $37,500/ household.

That means BC residents, under what some call nutty economic leadership, have only 60% of the debt Albertans will have, and BC will start paying off their liability about 3 years earlier.

How Much Debt Do Ontario Citizens Owe?

A quick look at Ontario, and what some also call nutty economic leadership, have now :

…increased provincial debt by 125%, from $138.8 billion to $311.9 billion (since 2003), making Ontario the world’s most indebted sub-sovereign borrower.

It is true that Ontario uses highly questionable accounting practices that other jurisdictions do not so a true ‘apple to apples’ comparison is difficult and their projections are an ever moving target.  However, it appears that they will not balance their budget until about 2026 with a total debt of near $350B.  With a population of 13.6 million people each Ontarian will be responsible for about $25,750.  Ontario has a higher housing density of 2.6 people per house, making their household share of Provincial debt about $67,000.

Will Alberta Really Be Like Ontario In Just A Few Years?

Alberta will be much closer to Ontario than BC by the mid 2020’s and Alberta does not have the diversification of industries that Ontario does.  It is a virtual certainty that there will be another serious economic downturn in the next 5 to 7 years and it is more than likely that Alberta will have a rougher time of it than Ontario, making it very unlikely that Alberta will hit the recently announced 2023 balanced budget target.

Further, to make 2023 happen under the current NDP government projections, we need the Kinder Morgan pipeline expansion to be completed.  While I am quite sure that expansion will be completed, I don’t know that I would bank my children’s economic future on it.

When To Pay Down The Debt?

It is never as simple as saying you should never take on debt.  Debt allows for faster expansion, better services and an increase in the standard of living… in the short term, but it has to be paid down at some point.

The formula for avoiding economic collapse is, however, quite simple:

  • In the ‘good times’, you save money
  • In the ‘bad times’ you take on debt

These are not the “good times” for Alberta, but we are out of the ‘bad times’.  Alberta spent two years crashing and bumping along the bottom but is now nicely trending upward.

Alberta was a standout performer with the 4%+ growth goosed up by a wildfire-related rebound in oil production, while Quebec and B.C. saw broad-based growth above 3%. Ontario rounded out the quartet with near 3% growth, weighed down by a cool-off in housing.

Now may not be the time to slash and burn budgets and it would be asinine to get rid of the Carbon Tax, but it is definitely time for SOME cuts, if we ever want to return to debt free status.  From my review of the documents, the Alberta NDP government has not cut a single departmental budget since they were elected.  And before you jump on the “stupid NDP” bandwagon, think about about three things:

  1. How the oil crash nearly wiped out Alberta leaving us in “one of the most severe (recessions) ever”
  2. How incredibly irresponsible spending was under the previous series of PC governments
  3. The NDP did bring in an effective and largely optional new tax that is sorrily needed to balance budgets

Also, there is an argument to be made that Albertans have a debt hysteria because we have been so proud to be debt free for so long.  To that I would ask, ‘Even if it is hysteria, why would anyone be in debt when they don’t have to be?’

How Can Alberta Pay Down The Debt?

The point of this article is not to pick sides, but to contextualize the facts and remind everyone, including the current NDP government, that WE have a choice.  Cuts are ugly but they are something we must do if we are going to live within our means.

If you have studied Organizational Behaviour and economics, you will know that cutting 2% from a budget will result in the cancellation of the next order of ball point pens and three kids in the mail room being fired.  Sadly large organizations, like governments, only respond to serious cuts.   Worse, like nearly everywhere in the Western World, about 70% of Alberta’s budget is spent on Education and Health Care which means that those are the two most meaningfuyl places to cut.

Making serious changes to the way business is conducted in those ministries (hospitals, primary care facilities, elementary schools, universities…) is sorrily needed.  Most people that have studied these say that middle management in constant efficiency sucking meetings, combined with a lack of empowered front line workers are the biggest drag and the easiest place to cut.

It will take political courage and an informed electorate to make it happen.  So Alberta Citizens have a choice to make, do we want to saddle our children with billions of dollars going to debt payments instead of future schools and hospitals, or do we want to follow our heritage of fiscal responsibility and leadership by at least starting to get Government right sized today.


Epilogue:

We are aware that we have omitted things from our calculations like:

  • population growth
  • interest rate changes
  • government often do not want to pay off all their debt for good reasons
  • debt to GDP is common standard of economic health

However, these simplifications were made for all jurisdictions so the relative numbers are accurate.

Also, because so much of the future debt will come to pass in a future of unknowns, we would not be surprised if the numbers were within a margin of error as large as 5%.

The numbers used are not predictions, they are projections based on common sense.

.

Leave a Reply