The idea that the Government of Alberta has a spending problem is a widely held belief in our province, and many of the people who hold this belief simply can't imagine that it isn't true.
Columnist Karin Klassen of the Calgary Herald certainly can't believe it isn't true. In fact, Klassen is so absolutely convinced that Alberta has a spending problem that in her column last week she admits to fear mongering about Alberta's public expenditure.
"Fear mongering? Darn right I'm scared – because the math just does not add up," Klassen proclaims.
While it's hard to view Klassen's latest column as anything but a rant, it is worth taking the time to debunk the persistent myth that Alberta has a spending problem. Why? Because this false belief was so often repeated by the provincial Progressive Conservatives during their 44 years in power, and it is still often parroted in the provincial and national media without a thought in the world about whether the claim is actually valid. If you're an avid newspaper reader, as I am, then you likely read dozens of articles in the lead-up to the recent provincial election that perpetuated the myth that Alberta has a spending problem.
There are a variety of ideological reasons why many people continue to perpetuate the myth of Alberta's out-of-control spending, and there are powerful political and economic interests that will continue to circulate this myth. While the claim has nefarious uses in political banter, the idea that Alberta has a spending problem simply isn't true.
Before I take on the claim with some actual facts, it is worth pointing out that the myth of Alberta's public spending "problem" has been with us at least since Ralph Klein became premier in 1992.
About five years after Klein became premier, the Parkland Institute was founded by Professor Gordon Laxer of the University of Alberta's sociology department. Parkland started with a bang: our first publication was Kevin Taft's book, Shredding the Public Interest: Ralph Klein and 25 Years of One-Party Government, and it became an instant national bestseller.
Every morning when I get coffee in our office I look up at a framed page H3 from the Saturday, February 9, 1997 issue of The Edmonton Journal, which discusses Taft's book. The page headline reads, "Klein inherited tight ship," and the page contains two excerpts from Taft's book.
The excerpt on the top half of the page starts with some historical facts on Alberta's public spending:
"By 1992, there was plenty of information circulating within the Getty government that showed spending on most public services had dropped markedly from 1985 levels. In early 1992, less than a year before Ralph Klein became premier, government financial analysts prepared a briefing package on government spending and finances that was circulated at upper management levels.
"[A chart from this package titled "Program Expenditure Growth Since 1985-86"] shows that Alberta had the tightest controls on spending in Canada throughout the very period the Klein government has claimed costs were out of control. Alberta's spending on public programs grew during this period at easily the lowest rate of all governments in Canada. If the graph had accounted for population growth and inflation it would have shown an actual decline in real spending."
"[A second graph, "Health Expenditures in Relation to Other Program Expenditures"] offers a direct contradiction to the Klein government's claim of skyrocketing health costs. The line for "Health" is basically flat from 1986 to 1993, with a slight decline from a peak in 1987. The reason health care spending takes a bigger piece of today's budget is not because it has gone up, but because other programs have fallen so sharply."
Now fast forward to March 2015. The province was abuzz with discussion of what then-premier Prentice's budget might look like. Speculation circulated about when he would drop the election writ, and the myth of Alberta's high public spending reached levels perhaps not seen since Klein's heyday.
Parkland Institute waded into the public debate about our province's finances with a fact sheet written by Parkland Distinguished Research Fellow Greg Flanagan entitled, "Looking in the Mirror: Provincial Comparisons of Public Spending."
Flanagan opens the fact sheet with a short introduction to the issues at hand and then he uses three charts to disprove the claim that Alberta spends more per capita than most or all of the other Canadian provinces. I'll turn most of the rest of this blog post over to Flanagan because it would be hard to debunk the Alberta spending myth better than he did just two months ago.
Flanagan explains, "Alberta's revenue problem is well documented, as is the province's dependence on resource revenue to pay for current public expenditures. The reaction to the dramatic decline in these revenues with the fall of the price of oil in late 2014 has been considerable. Recently there has been much discussion of provincial government expenditures, with some suggesting that Alberta is spending 'too much,"'and more than any of the other provinces in Canada."
Flanagan continues: "In a February 26, 2015 speech to the Canadian Club of Calgary, Premier Jim Prentice told the audience that 'we are spending $1,300 more per capita than the national average' and that in Alberta there is a 'culture of spending and entitlement.' Most controversially, the premier also suggested on CBC radio that 'in terms of who is responsible, we need only look in the mirror. Basically, all of us have had the best of everything and have not had to pay for what it costs.'"
Flanagan then asks, "But does Alberta really have a spending problem? Is public sector spending in the province really outpacing the level of public expenditures in other provinces?"
The rest of the fact sheet is a discussion of the following three charts. The first depicts the 2014 provincial government total expenditures on a per capita basis. The chart shows that Alberta does not spend $1,300 more than the national average. Our provincial expenditure in 2014 was actually in the middle of the pack and less than six of the nine other provinces.
Flanagan then presents a table illustrating the differing rates of inflation across the ten provinces from 2002 through 2014.
Flanagan explains, "It is important to see here that Alberta's inflation is seven percentage points higher than the national average. This means that it costs more for the same public service in Alberta, all other things constant, than in any other jurisdiction in Canada. Also, not factored in these figures is that Alberta's population has been growing at a phenomenal rate, and greater than all other provinces, which also necessitates much greater infrastructure costs. In order to really compare public sector spending between provinces, it is necessary to control for inter-provincial differences in the costs of public services caused by differences in provincial inflation rates."
Enter the second chart from the fact sheet, which illustrates the 2014 public expenditures for the 10 Canadian provinces normalized for their differing inflation rates.
This chart shows that when we take the differing provincial rates of inflation into account only Ontario and Quebec spent less than Alberta per capita in 2014. Flanagan notes that because of the large populations of Ontario and Quebec it may be that "these provinces ... enjoy greater economies of scale in the provision of public services reflected in total government expenditure."
This brings us to Flanagan's third and final chart, which depicts the total government expenditure of each province as a percentage of the 2014 gross domestic product (GDP) of each province. Flanagan explains that "financial and economic circumstances have diverged significantly across the provinces, making it more difficult to meaningfully compare levels of public spending. Therefore, it may be best to consider government expenditures as a percentage of gross domestic product (GDP), which is a technique generally used to compare public sector spending between nations with very different economies."
In Flanagan's words, the final chart shows that "In terms of public spending relative to the size of the economy, Alberta is easily the lowest in the country, with government expenditures of just 13% of provincial GDP. The next closest province, Saskatchewan, has government spending of 17% of its GDP, and the national average by this measure is 22%."
Based on these provincial comparisons, Flanagan concludes that "the fiscal problem in Alberta is clearly not an expenditure problem, as Premier Prentice and others have claimed. It is a revenue problem."
I'm not naïve enough to believe that claims about Alberta's mythical spending problem are suddenly going to disappear from the public discourse in our province. There are powerful political and economic interests that will continue to perpetuate the public spending myth.
But I do hope and assume that our new provincial government is going to diverge from the Alberta PC tradition and actually make policy decisions based on empirical research and facts.
I'd also like to gently suggest that as the new Alberta government, assisted by our able civil service, prepares Budget 2015 over the summer that they consider some of the research on taxes and finances in the Parkland Institute's online research archive. The challenge of bringing focus to the revenue side of the provincial government ledger has been addressed extensively in past Parkland Institute reports. See for example:
The Way Forward: Progressive Income Tax in Alberta (March 2014)
Stabilizing Alberta's Revenues: A Common Sense Approach (February 2013)