50 Years of Government of Alberta Budgeting

This briefing note uses a newly completed time series on the government of Alberta’s finances to present a broad overview of the government’s budgetary choices since fiscal year 1965–66. The note paints a picture using broad strokes that focuses on the government’s attempts to deal with volatile energy revenues. It shows that over the past 50 years the government has made a policy choice to allow volatility in energy revenues to create volatility in its budget. This policy choice has resulted in occasional bouts of severe spending contractions and likely encouraged higher rates of spending and lower taxation than would otherwise have been observed. These outcomes are the result of the government failing to heed the advice of economists, namely, to save energy revenues and in this way establish a steady and reliable source of revenue. In the note we describe a number of strategies the government has used over the years to reduce its reliance on energy revenue. Success came only after a dramatic cut to program spending in the mid-1990s. Only during this brief period in the mid-1990s was the government able to fund current expenditures without the need for energy revenues. To use a phrase made popular in the 2015 provincial election campaign, for that brief period in the mid-1990s, the government had managed to climb “off the energy roller-coaster.” But it could not stay off, and the government, with the support of voters, returned to a pattern of financing spending growth not with taxation but with energy revenues. At the time of writing this note, the current government is suffering the consequences of a budget based on spending and tax choices that require a heavy reliance on energy revenues to find balance. Getting off the energy roller coaster requires new revenue, cuts to program spending, or some combination of the two. To remain off the roller coaster requires a commitment of the sort previous governments have been unable to stick to.