Round numbers tend to garner attention — whether or not they are actually meaningful — and Alberta is facing two particularly grim figures in its next fiscal year: 10 and zero.
The province's deficit is expected to surpass $10 billion in 2016-17, while its net financial position is expected to plunge below zero and into negative territory for the first time since 1999.
- Alberta's fiscal update: Difficult choices ahead
- Finance minister warns of looming $10-billion deficit budget
- Alberta budget: Economy could trump health and education
Politically those are tough numbers and, indeed, Finance Minister Joe Ceci refrained from actually using the phrase "$10 billion" when providing a fiscal update to reporters this week, although he eventually did utter the words in a CBC radio interview.
Next year's deficit will also drag the province's net financial position into the red, with total liabilities exceeding assets, just like every other province.
But that doesn't particularly perturb University of Calgary economist Trevor Tombe.
"There's no economic reason why a small positive net financial position, like we're in today, going into a small negative one, like we're likely to see at this time next year, would be a big concern," he said.
Even when it dips into negative territory, Tombe said Alberta's financial position will remain the envy of the country, as other provinces continue to carry far greater borrowing burdens, by comparison.
British Columbia's net debt stands at about 17 per cent of its GDP, while Ontario's hovers around 40 per cent and Quebec's at a staggering 50 per cent, according to a recent RBC Economics report.
"Alberta is in a really strong position to absorb this negative shock that it's seeing," Tombe said. "Its borrowing capacity is just enormous because of the good financial position it's in."
The real issue, he noted, is what happens to the province's finances over the next several years.
"The concern is not about the $10 billion — the concern is about the expected path of future deficits," he said.
"We wouldn't want to squander that position and run large deficits for the next decade and then wind up in a similar position to Ontario."
Deficit slaying then and now
If Alberta indeed runs a $10.4-billion deficit in the next fiscal year, Tombe said that would amount to roughly 3.3 per cent of the province's GDP.
In relative terms, that would be the worst since 1992/93, when the deficit stood at 4.3 per cent of GDP.
That was also the year that Ralph Klein became premier, promising at the time to return Alberta's books to black within four, maybe five years.
As it turned out, Klein only needed two. Alberta posted a surplus of about $900 million in 1994/95.
That was largely accomplished by a nearly 20-per-cent reduction in program spending, coupled with a 55-per-cent jump in non-renewable resource revenue over those two years.
The current government is facing the opposite trajectory in oil prices.
Alberta collected $9.6 billion in non-renewable resource revenue in 2013/14. In the current fiscal year, the haul is expected to fall to $2.5 billion.
That's a 74-per-cent decline over two years.
"Unless oil prices come back, we're going to be looking at perpetually large deficits in Alberta," Tombe said, adding the government needs to figure out "some sort of credible plan" to address the situation.
"So, not a knee-jerk, sudden cut or tax increase, but a gradual, responsible move out of deficit — even if oil prices don't rise."
For further context and comparison, this interactive graph shows provincial budget deficits and surpluses since 1981: