Alberta, Ontario Earn Contrasting Reviews for Belt-Tightening Plans

News Analysis

The governments of Ontario and Alberta have taken some heat for cutbacks in their latest budgets. But both realize that fiscal restraint is long overdue given rising interest expenses that impinge on program spending and leave future generations with higher taxes.

Where they differ is in their strategies.

“Alberta is taking a much more active approach to deficit reduction than Ontario is,” said Ben Eisen, senior fellow at the Fraser Institute.

Alberta Premier Jason Kenney, in his first provincial budget delivered on Oct. 24, promised to balance the budget in four years. By 2022–23, however, Ontario is still projected to be in the red by 0.4 percent, according to an RBC Economics report published Nov. 19.

Provincial Comparison

Compared with Ontario, Alberta has tougher sledding ahead to balance the books, as its economy has not fully recovered from the crash in oil prices that began in late 2014.

Trevor Tombe, associate professor of economics at the University of Calgary, says the choices made in Albertas 2019 budget will lead to less borrowing and an estimated reduction in interest payments of about $800 million in 2022.

Until Kenneys budget, “we havent seen a path to balance put out by a government in Alberta since early 2015,” Tombe said.

Albertas budget proposes to cut spending by 2.8 percent over four years, which amounts to $1.3 billion below 2018–19 levels. In the 1990s, Albertans saw cuts of nearly 20 percent.

“In my view, Budget 2019 is a clear and credible path to balance,” Tombe wrote about Albertas budget under Kenneys leadership in an Oct. 28 op-ed for CBC.

In contrast, Eisen suggests that Ontario take a page out of Quebecs book to get its financial house in order. He says Quebec has always carried more debt than Ontario relative to the size of its economy, but that all changed in the aftermath of the great recession that hit in 2009.

“As stronger revenue came in … they didnt commensurately increase spending,” Eisen said about Quebecs tack. “They continued to exercise spending restraint through that period.”

In a Nov. 13 op-ed, Eisen lauded the speed of Quebecs approach to eliminating the deficit and said that in comparison, “Ontarios debt management is especially unambitious.”

In 2019–20, Ontario projects a debt-to-GDP ratio of 40.0 percent, according to the provinces fall fiscal update released Nov. 6. But very little progress is expected in reducing this ratio over the outlook period, through to 2021–22.

Quebecs debt-to-GDP ratio peaked at 50.9 percent in 2012–13, but the province balanced its books in 2015–16 and its debt-to-GDP ratio is projected to fall from 38.8 percent this year to 34.8 percent in 2023–24, according to a Fraser Institute report published Nov. 13.

The last time Ontario had a balanced budget was before the financial crisis of 2008. Annual deficits have since added $107.3 billion to the debt, which stands at $353.7 billion—the most of any sub-national government in the world, according to Moodys.

Ontario is spending roughly $13 billion a year in interest payments.

We Must Put Our Own House in Order

Kenney says Alberta had a spending problem and cant count on federal government support.

“We must be self-reliant. We must put our own house in order,” he said in his pre-budget speech on Oct. 23, adding that Alberta has the biggest deficit in the country on a per-person basis and that it spends $5 million each day to pay interest on its debt.

In August this year, all provincial elected members took a 5 percent pay cut while Kenney himself took a pay cut of 10 percent.

The Conference Board of Canadas quarterly provincial outlook report, released Nov. 26, forecasts growth in Ontario to slow to 1.6 percent in 2019 and 1.5 percent in 2020. In contrast, for Alberta, after stalled growth in 2019, improved growth of 2.4 and 3.1 percent in 2020 and 2021 respectively should give a relative boost to its fiscal position in concert with Kenneys transformative budget.

The cuts made by Ontario and Alberta are mild by historical standards, but theyre a distinct departure from preceding governments that ran up spending and enlarged deficits.

Related Coverage

Those complaining about budget cuts in Ontario and Alberta may have forgotten about prior governments in the 1990s—both provincial and federal—that made a name for themselves in deficit reduction with deep spending cuts. And it wasnt a partisan thing either, says Eisen.

He points to the federal Liberals led by Jean Chretien, Ralph Kleins Progressive Conservatives in Alberta, and Roy Romanows NDP in Saskatchewan.

“They eliminated a very large deficit and they subsequently had more political success,” he says. “They werent punished electorally for that.”

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