The Auditor General’s Plea for Reporting on Alberta’s Fiscal Health
Last week, Alberta’s auditor General released a report with a simple, but bold and much needed message. That the Government of Alberta needs to inform Albertans about the province’s fiscal situation over a longer time horizon than the three years that are normally projected in the Provincial Budget. The previous and current governments’ fiscal policies have been driven by short term fluctuations in resource revenue, with increases in spending whenever there is an upturn on resource revenues. As a result of these myopic policy responses, we have been sleep walking toward a fiscal precipice—an unsustainable increase in the province’s debt.
A good example of this behavior is the NDP’s 2018 budget which relies on a very optimistic revenue scenario for the province’s return fiscal balance in 2023-24. In our policy brief “The Path To Balance Or The Road To Ruin?”, which is available on The School of Public Policy’s website, we show that the goal of fiscal balance could easily be overturned by events over the next six years. Financial market disruptions could lead to higher interest rates and trade wars could lead to slower economic growth. A more responsible fiscal plan would have used more cautious projections of future revenues to determine the spending restraint that is necessary to balance the budget in 2023-24. It would commit the government to saving any improvement in resource revenues in the Alberta Heritage Savings Trust Fund or a newly created revenue stabilization fund.
The Auditor General’s report, “Putting Alberta’s Financial Future in Focus” is a long overdue plea for a regular analysis of the sustainability of the Alberta’s fiscal policies and assessments of the risks that we face from demographic, technological, and environmental trends. But who should prepare these reports? Most national governments’ fiscal policies are scrutinized on a regular basis by international institutions such as the IMF and OECD. Fiscal sustainability analysis is a standard feature of these assessments. Some government have set bodies, such as the Parliamentary Budget Office, to provide an independent assessment of their government’s fiscal policies. Alberta has not adopted such a body and its fiscal policies are not subject to reviews by international institutions.
The School of Public Policy has identified the need for independent analysis of Alberta’s fiscal problem and created the Alberta’s Fiscal Future project. This two-year research and public engagement initiative will provide the public and policy makers with in-depth analyses of Alberta’s fiscal situation and policy options to address it. With the Alberta’s Fiscal Future project, The School of Public Policy will release a series of research papers and hold events on Alberta’s fiscal issues.
However, for the longer term, we need reforms to Alberta’s fiscal institutions. Embedding fiscal rules in a provincial constitution to constrain government spending and its ability to run deficits over an extended period has been advocated by Dr. Ted Morton and is elaborated in a forthcoming paper in the Alberta’s Fiscal Future series. We should also consider the establishment of an independent Fiscal Council that would publish reports on the province’s fiscal situation on a regular basis.
We welcome the Auditor General’s initiative and hope that it will lead to a set of institutional reforms that will provide Albertans with the information that they need to hold the government accountable for the fiscal health of the province.