Opinion: Alberta’s middle-income tax cut languishing due to government’s chronic overspending

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News that Alberta’s $1.1-billion middle-class tax cut will now be phased in over the next few years, rather than fully implemented in the 2024/25 fiscal year, should not come as a surprise to the many Albertans dealing with affordability issues.

The recent mid-year fiscal update revealed just how precarious Alberta finances have become. It appears that just a $5 per barrel decline in WTI crude oil prices would put Alberta’s finances in a projected deficit position in both 2024/25 and 2025/26.

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Why has this happened? The Alberta government has fallen into the same old trap of spending oil and gas revenue windfalls. With the majority of oilsands projects now at post-payout and paying royalties at a rate of between 25 and 40 per cent of net revenues depending on oil prices, that revenue has become even more volatile, and should have prompted action to make government revenue forecasting more prudent. But it has not, so is it any wonder that the Alberta government is now thinking of implementing the middle-income tax cut incrementally over the next four years?

Alberta’s new fiscal framework, the Sustainable Fiscal Planning and Reporting Act (SFPRA), was supposed to prevent overspending, but it has perpetuated the province’s overreliance on oil and gas revenues for current budget purposes, and established various loopholes around balanced budgets and spending limits. The new fiscal framework clearly needs to be reopened, but that is a topic for another day.  

If there is a one shaft of light into this familiar dark story, Albertans are at least getting an earlier warning of the consequences of overspending through the revised estimates of Alberta’s fiscal position, as found in the mid-year fiscal updates. The government can no longer hide three-year fiscal plan updates behind closed doors, only to publicly present them in the following year’s budget. Albertans are now privy to how tight the financial picture has become for the next two fiscal years, but this new attitude of transparency and accountability only came about because the MacKinnon Panel on Alberta’s Finances, in 2019, forced the government’s hand to legislate the requirement for preparing and presenting mid-year fiscal updates, along the same lines as the fiscal plan presented in the spring budget.  

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The need to improve mid-year fiscal reporting practices in Alberta has been a long-standing issue. When employed in Treasury Board and Finance, back in 2013, I examined best practices in mid-year reporting and concluded that Alberta had fallen well behind the governments of CanadaOntario, and Quebec, and offside of OECD and IMF best practice guidelines. At the time, I recommended that Alberta prepare a comprehensive mid-year fiscal and economic update, along the same lines as those published by the governments of Canada, Ontario and Quebec.

Six years after my initial recommendation, the MacKinnon Panel made a similar request, and the provincial government finally relented. However, Alberta’s mid-year fiscal updates still need improvements — most notably, they need to include the fiscal effects of all known government revenue and expense promises and the timing of their implementation, even those made during an election campaign. As noted by the OECD, mid-year fiscal reports should include “the disclosure of the impact of all government decisions, or other circumstances, that may have a material effect on the budget.”

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Good fiscal planning is about making prudent choices. The fact that the Alberta middle-class tax cut now languishes on the shelf is due to the excessive spending choices made by government, as detailed in Alberta’s mid-year fiscal reporting documents.

Lennie Kaplan is a former senior manager in the Fiscal and Economic Policy Division of Alberta’s Treasury Board and Finance Ministry, where, among other duties, he examined best practices in fiscal reporting in other jurisdictions. He also served as executive director to the MacKinnon Report on Alberta’s Finances. He recently retired from his position as executive director of research at the Canadian Energy Centre.

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