Proposed 10-year Fiscal Plan for Alberta Would Eliminate Dependency on Resource Revenues

CALGARY, March 4, 2013 /CNW/ - With the 2013 Alberta budget due to be released on Thursday, and the expected announcement of a large provincial deficit, Professor Ron Kneebone and Margarita Gres of The School of Public Policy have produced a 10-year plan for getting the province's finances back in order.

"Alberta has a substance-abuse problem. The substance is fossil fuels, and the province has become hooked on the revenues from oil and gas sales to fund its spending," the authors write.

This reliance on resource revenues has created a large "Budget Gap," which is the difference between its spending and all the revenue it earns not from non-renewable resources. The size of that gap summarizes just how much provincial government spending on health care, social services and education is at the mercy of commodity-market swings.

Kneebone and Gres propose that the province stop depending so heavily on resource revenue and commit to shrinking its Budget Gap from $4,273 per person (2012) to $1,500 per person by 2023. At that level, spending on core programs is insulated from unpredictable swings in energy prices.

The authors offer a menu of policy options for reducing the size of the budget gap. All options must include spending cuts. New revenue, whether in the form of a sales tax or increases in current tax rates, cannot on their own achieve the goal of permanently reducing dependence on uncertain energy revenues. New revenue can only reduce the size of the spending cuts required to achieve fiscal sustainability.

The authors' analysis includes the implications of introducing spending restraints on health care, social services and education with and without the extra revenue made available by increasing the tax rate on personal income and the revenue from a new provincial sales tax of 3, 6 and 9 per cent.

Government will ultimately decide which combination of measures it wishes to employ. Kneebone and Gres argue, however, that since health spending makes up 40% of total spending, and it is currently increasing at a rate that sees it double every 20 years, controlling health spending must be part of the solution. Exempting health care from spending cuts would only be possible with "draconian" cuts to social services and education of over 30 per cent by 2023.

The report can be found at www.policyschool.ucalgary.ca/publications

SOURCE: The School of Public Policy - University of Calgary

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