Alberta's debt is growing, so how much is too much for Albertans?
Getting all ginned up about debt has a long history here in Alberta
Remember the 1990s, when debating deficits and debt was almost an obsession? Well, brace yourself.
Alberta's budget will drop next week. And you're likely to hear a whole lot of chatter about borrowing and spending. Big numbers will get thrown around with capital "B" billions attached. The question is, how much will you care?
Debts and deficits are a "thing" here in Alberta. A political minefield. And just ahead of next week's provincial budget, it's worth exploring just how politicians, pundits and more importantly voters, feel about debt.
We're potentially a year out from an election. Things are going to get interesting. And we've been here before.
Alberta's ugly history of debt
Getting all ginned up about debt has a long history here in Alberta.
A couple decades ago, on both provincial and federal levels, there was real, palpable concern about governments going bankrupt. In a now infamous editorial in 1995, the Wall Street Journal branded Canada an "honorary member of the Third World." Ouch.
In 1993, when the Liberals came to power, the federal government faced a deficit of $38.5 billion. International bond rating agencies had slashed the country's credit rating. Economists speculated about when — not if — the federal government and some provinces would max out their credit cards.
The Reform Party — born here in Alberta — railed relentlessly about ballooning deficits and debt. A real concern pervaded politics. And it motivated voters.
At the same time, on the provincial level, Alberta was in political and social turmoil over debt.
Historically, our province had balanced its books over the years, and we mainly did it because of our energy wealth. But in the mid-1980s, the bottom fell out of oil prices, and we started to borrow — a lot.
Premier Don Getty's government ran massive deficits. But that became untenable to Albertans by the early 1990s. And thus, the "winds of change" started to blow. The 1993 provincial election became a contest between Liberal Leader Laurence Decore's "brutal" cuts vs. Premier Ralph Klein's "massive" cuts.
We voted for "massive."
Klein won that election and then his government set about imposing his cuts. Hospitals, public programs, infrastructure — very little was spared. There was public outcry, political debate and real anger. But it worked, along with rising energy prices.
Dubbed the Klein Revolution, the popular premier declared Alberta debt free in 2004. But the process shaped the province and public debate.
"It was really part of our political identity," said Calgary-based pollster Janet Brown in an interview with CBC News.
Our province's economic and demographic reality has shifted in the last decades. But our political identity, informed by past experience, is now facing another period of debt.
Racking up debt again
Alberta's governing New Democrats have borrowed heavily to finance operations and build infrastructure. And before them, the former Progressive Conservative government's final budget forecast a $5-billion deficit.
Despite being debt free in 2004, Alberta's debt is now forecast to hit $71.1 billion by 2019-20. Political critics say the governing New Democrats are spending recklessly. The NDP says it's all part of a plan, and it has promised to balance the budget by 2023/24.
But the Canadian Taxpayers' Federation, in fact, continues to run an online petition calling on the province to cut spending, stressing that it's not fair to "young Albertans who will inherit the province's ballooning debt."
And some economists are also increasingly worried about deficit spending by governments.
"I must say I am concerned...," said Jack Mintz, the president's fellow of the School of Public Policy at the University of Calgary.
"I think we are forgetting some of the lessons of the 1990s, where we had to deal with a very bad situation."
Mintz is not alone. Even on the national level, people are paying attention to Alberta's spending. Last year, a report by the federal Parliamentary Budget Officer raised concerns about Alberta's long-term budgetary challenges.
Yet some argue we aren't nearly worried enough.
A snowball rolling down a hill
Despite the concerns of experts, fiscal hawks worry that their side is losing the public debate about deficits and debt.
Colin Craig, with the Canadian Taxpayers' Federation, says fiscal conservatives need to do "a better job" communicating about the repercussions of deficit spending.
Craig says Alberta can actually take a lesson from Greece's recent financial train-wreck. When borrowing reached a record high in the Mediterranean country in 2015, international bailouts and austerity followed. Governments that overspend, he says, ultimately end up slashing public spending. And that, "ultimately, what is happened in Greece, is that they had to cut to health care. Their financial situation was such a mess they had to cut health care."
Certainly other places can offer Alberta financial cautionary tales, but there's a limit to the metaphor.
Craig concedes the seriousness of Alberta's deficit spending is nothing like it was back in the 1990s, when many Canadian governments nearly hit the wall financially.
Janice MacKinnon, former NDP Saskatchewan financial minister, who balanced that province's budget in the mid-1990s after years of red ink, said last year that Alberta's deficit spending isn't "a crisis right now."
But today's problem can become tomorrow's crisis.
"The problem is going to get worse. It's like a snowball going down a hill — the problem is going to get worse and worse the longer you delay," said MacKinnon last fall, as she released a report calling on Alberta's New Democrats to come up with a plan for balancing the books.
That's something Rachel Notley's NDP government says it's doing.
Messaging the debt
To put things into in perspective, Alberta still has the nation's lowest debt-to-GDP ratio (forecast last fall at around 6.5 per cent).
The economy is growing again, oil production is expected to increase and more people will likely move to Alberta — translating into more revenue for the province.
Still, the reality is, Alberta is still borrowing, and that's become a political weapon. The UCP is hammering the NDP, suggesting Alberta is set to plunge off a fiscal cliff. Last year, when the NDP unveiled a $10.3-billion deficit, Jason Kenney tweeted the province is "drowning in debt."
Some longtime political science types think the NDP's deficit spending is a political gift, of sorts, for the United Conservative Party and its leader Jason Kenney — a man who once headed the Canadian Taxpayers' Federation in Alberta.
"I will give the UCP credit for their political message. They have been consistent and they have pounded this home" says Mount Royal University political scientist Duane Bratt.
The message is that Alberta is living beyond its means, and cuts are necessary. Something both parties are saying, but approaching in different ways.
While the NDP has talked recently about "compassionate belt-tightening" as the economy improves, the government insists that running short-term deficits is preferable to "severe cuts to programs and services," especially as Alberta weathered one of the worst recessions in its history.
In a recent interview with CBC News, Alberta Finance Minister Joe Ceci insisted deficit spending is "necessary" given the worldwide drop in oil prices.
Ceci says the alternative was to slash spending — and throw thousands of public servants out of work.
"We still need hospitals. We still need more schools for kids. We still need to ensure that we have the backs of Albertans who are suffering through a recession," said Ceci.
Both the NDP and the UCP spin deficit spending, hoping for political advantage.
"They are both playing games on the debt and deficit. The question is which one is going to be most convincing to Albertans," said Bratt.
And so, for Bratt, the question is, will debt matter to voters like it really did in the 1990s.
Buying the deficit argument, for now
Voters have sent mixed messages in recent years about deficit spending. So, it's hard to know — definitively — if voters still care like they did in the 1990s about governments borrowing to pay the bills.
Justin Trudeau and his Liberal Party jumped from third in the House of Commons to a comfortable majority in the 2015 federal election after promising to run deficits.
Here in Alberta, Janet Brown, who polls voters regularly about government spending, thinks Albertans initially accepted the idea of provincial deficit spending, by the Progressive Conservatives as far back as 2015, and now by the NDP.
"They sort of bought into arguments that as long as you had a plan to get back to balance, that temporary deficits were OK under certain circumstances."
And it's not just governments maxing out the credit cards.
You have to wonder if Albertans' private tolerance for debt will affect what they are willing to put up with from their provincial government.
Paycheque to paycheque without a plan
If it takes one to know one, then Canadians, personally, know what it's like to be a deficit-spending government.
Canadian households lead the world in debt. All that debt — plus the overheated housing markets in the country's largest cities — is a huge risk for Canada's economy, warned the Bank of Canada last November.
Albertans, in fact, lead the nation in consumer debt. Plus, many people in our province are living paycheque to paycheque. Nearly half of Albertans say they are $200 away from not being able to pay their bills.
Historically low interest rates have also made it easier for individuals — and governments — to borrow. So, there isn't as much pain associated with debt as there was in the early 1980s when mortgage rates hovered above 20 per cent. And back when governments didn't have a clear path to paying off debt. The fear of not being able to see a way to ever get out of debt drove a political willingness to cut.
And today, interest rates are again on the rise, and Alberta's economy is no longer cooking with oil and gas. The province paid $1.36 billion in borrowing costs last year. That cost could reach $2.3 billion a year by 2019-20.
"A fiscal crisis doesn't happen overnight," warns economist Ron Kneebone of the U of C School of Public Policy.
"You need to build a foundation to get there. And a foundation is based on accumulating debt and getting yourself into a situation that should interest rates rise, it's going to force you — not through politics, but through simple accounting .... to either raise new taxes or cut back on spending."
A $10-billion bridge too far
Canadians as a whole appear to be souring on the federal Liberal's deficit spending.
Widely criticized by the business community, the recent federal budget forecasts an $18.1-billion deficit in the 2018-2019 fiscal year. The gap between revenue and spending is expected to decline to $12.3 billion by 2022-2023.
A recent national poll found that almost two-thirds of Canadians would prefer a balanced budget over more government spending. Of those surveyed, Albertans were the most likely — 70 per cent — to want a balanced federal budget.
That's a political bellwether. Federal politics can foreshadow provincial politics.
Brown is hearing from Albertans who are growing increasingly weary about the governing NDP's spending.
"It's like we've gone too far," said the pollster.
That's the deficit.
Alberta's provincial debt is forecast to hit $71.1 billion by 2019-20, with a debt-to-GDP ratio of 19.5 per cent. Servicing that debt is expected to cost $2.3 billion per year by then.
Big numbers. Really big numbers. And there was one in particular that Brown thinks was a Rubicon, of sorts, for Albertans.
"Once our annual deficit exceeded $10 billion, we crossed into this realm that left most Albertans uncomfortable," she said.
$10 billion. A nice round number. Perhaps it's a bit like pricing in a shop. $9.99 you'll buy something. At $10, it's just too much. Maybe more emotive than rational. But still part of the equation.
Detailing the plan
The NDP says that running short-term deficits is preferable to "severe cuts to programs and services," especially during hard economic times.
And yes, Alberta's ballooning deficit is shrinking.
It's also likely that the NDP could spell out a more detailed plan for ending deficit spending in its upcoming budget — potentially dulling public concern. And setting the stage for the election next year.
Bratt thinks the NDP government can blunt some of its critics' attacks, if it produces a budget on March 22 with a smaller deficit in the range of $6-7 billion.
"They can legitimately go to the Alberta people and say, 'we were dealt a bad hand in 2015. We decided not to make things worse by making dramatic spending cuts.'"
Voters get their say next year.
In a recent visit to Calgary, former Saskatchewan Premier Brad Wall speculated that upcoming provincial campaigns in Ontario and Alberta and the federal election expected in 2019 will determine if Canadians care about government debt.
"I think Canadians are going to find out a lot about their country from those three elections. I think we're going to find out if fiscal responsibility is cool again," said Wall in a speech to Calgary's Chamber of Commerce.
In the short term here in Alberta, all eyes will switch to the legislature next week. On March 22, we will get more details about the NDP's plan for dealing with the deficit and paying off the debt.
What voters will make of it all, we will see. Whether the lingering pain from the 1990s will make Albertans head-shy about cuts, or whether the memory that we "did it once so we can do it again" will feed a tolerance of short-term pain for potential long term gain.
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With files from Robson Fletcher