Managing Alberta’s Fiscal Future
Date
2021-08-24
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Abstract
The fiscal situation of the Alberta government is not sustainable in the long run. A number of factors, such as an aging population requiring increased healthcare funding and “decarbonization” of oil and gas resources worldwide places pressure on government revenue, in part contributing to the unsustainability of provincial finances. Without policy changes, government debt will increase through deficits and debt servicing costs. High debts accumulated by the provincial government will therefore result in a higher debt-to-GDP ratio. Recent spending on COVID-19 recovery programs by the Alberta government has also contributed to the increase of the provincial debt-to-GDP ratio, although this is projected to be short-term. Public services such as healthcare, social services and education are funded by the government. In order to continue providing excellent public service to Albertans, government finances must remain sustainable. Provincial debt-to-GDP ratio is projected to sharply rise from 11.4% in 2020 to 26.6% in 2024, amounting to approximately $62 billion of new debt. Therefore, government debt will continue to increase for the foreseeable future. Unsustainable public finances may inevitably affect Albertans through austerity, resulting in a number of social and economic consequences. Achieving fiscal sustainability is possible, although it would require the gradual implementation of a number of policy options to reduce or maintain debt-to-GDP ratio. This includes introducing a provincial sales tax, excluding natural resource royalties from government revenues, increasing personal income tax rates, reintroducing the provincial carbon tax and prudently managing public expenditures.
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Chua, D. (2021). Managing Alberta’s Fiscal Future (Unpublished master's project). University of Calgary, Calgary, AB.