If there was ever a place that was the "anti-Greece" when it comes to public finances, it must be Alberta. Compare Alberta to many places around the world, be it European fiscal disasters, or even nearer to home, and in most decades, Alberta shines in comparison.
For instance, consider Quebec's destructive anti-wealth creation policies which made that province poor. (It was not always thus. A 1940 Royal Commission noted Quebec was once "long considered the fiscal Gibraltar of the Canadian provinces.") Or consider Ontario, which has wasted as much as $1.1 billion on two electricity generating plants, cancelled because of local politics.
In that sense, Alberta is the "anti-Greece," where prudence in finances has, in the past at least, been seen properly as a worthy goal. It is a goal that avoids sending ever-more tax dollars to debt interest and thus instead uses tax dollars for day-to-day taxpayer priorities.
However, when attempts are made to move away from more prudent finances, the political behaviour is fascinating to watch.
Normally, Alberta's politicians happily trumpet the province's bulging coffers when the province is in such an enviable position.
Thus, in 1985, Alberta Finance Minister Lou Hyndman noted the net asset position of the general revenue fund as well as the positive balance in the Alberta Heritage Savings and Trust Fund: "There are few governments in the world that can match the financial strength of the Province of Alberta," said Hyndman in his March 1985 budget speech. More recently, in a June 2012 news release, the provincial government trumpeted how Alberta was the only province "in a net financial position."
But the boasting always tapers off once provincial finances spiral downward, caused in part because of declining resource revenues but also and often in larger part to permanently higher spending patterns.
In the mid-1980s, just after Hyndman made his boast, provincial finances rapidly declined into red ink and stayed there for nine years and the province plunged into net debt. More recently, the boasting about Alberta's net financial position atrophied as provincial politicians instead announced they will borrow much more for infrastructure, this as opposed to carving more money for that priority out of existing spending envelopes.
The result of the declining political attachment to fiscal prudence in Alberta was seen first in the five massive deficits since the recession, but also in the resulting hit to Alberta's net financial assets, the value of which has dropped by two-thirds since the recession year of 2008/09. (Such net financial assets include the value of the Alberta Heritage Savings Trust Fund and the Sustainability Fund, and then netting those assets against liabilities such as rising accumulated debt, pension liabilities and other accounts payable.)
In just six years, such financial assets dropped in net value to $12.1 billion by 2012/13, this from $34.5 billion just before the 2008 recession. (None of that $22.4-billion decline results from spending on the June floods, as I'm taking the numbers from the province's annual report, and the year-end for that was in March.)
For students of history, the recent decline mimics how Alberta's financial assets plunged between the mid-1980s and to 1994, at which point the province found itself in net debt of $20.1 billion (all figures adjusted for inflation).
The earlier average annual decline in net financial assets amounted to $4-billion; the most recent decline in Alberta's "net wealth" has averaged just over $3.7 billion annually. The province is thus repeating, almost dollar for dollar, the 1980s/1990s-era annual decline in financial assets.
It might be argued that some of the decline is to be expected, given the post-recession decrease in resource revenues compared to higher revenue years prior to it. Indeed, some decline was expected, but a massive and often unremarked contribution to Alberta's asset decline was the mismanagement of the other side of the ledger.
While Alberta's resource revenues hit a peak in 2005/06 (and have recovered somewhat), arresting the present decline in Alberta's net financial assets is not helped by historically high program spending. At present, such spending is $2,861 higher per person in real terms relative to the turn of the millennium, and $874 higher per person relative to 2006/07--the year when Alberta's own-source revenues were at their peak.
While the province has lately moderated any additional program spending growth beyond population growth and inflation, Alberta per capita program spending last year was still at near-record highs, at $10,564 per person. That level was exceeded only in the recession year of 2008/09. Those who wonder how Alberta just lost two-thirds of its financial assets might wish to look at the program spending side of the provincial ledger. Part of the reason for the decline is right there.