Premier Danielle Smith has announced the creation of a new cabinet committee tasked with reviewing government spending in Alberta. This committee, comprised of the premier, Finance Minister Nate Horner, Technology and Innovation Minister Nate Glubish, three treasury board members, and three private members, will be responsible for examining every government program in every department, seeking out ways to reduce wasteful spending and redirect resources to higher priority areas.
Smith emphasizes that this review is crucial for fulfilling the UCP’s promise of a personal income tax cut. However, critics argue that the initiative is more about bolstering Smith's political standing than achieving genuine fiscal discipline. The focus on a single tax cut ignores the broader issue of Alberta's persistent spending problem.
A Deeper Dive into Alberta's Spending Habits
The UCP’s election campaign centered around a pledge to introduce an 8% tax bracket for personal income below $60,000, a move projected to cost the provincial treasury $1.4 billion annually. While the 2024 budget delayed this tax cut, Smith recently confirmed that a "substantial" reduction is imminent.
The problem is that Alberta's history of fiscal management is characterized by a tendency to ramp up spending during periods of high resource revenue and budget surpluses, only to struggle to rein in spending when resource revenues decline. This cycle has resulted in historically high levels of government spending and budget deficits, even in recent years.
The Smith government introduced a rule limiting increases in operating spending to the rate of population growth and inflation, a step in the right direction. However, previous spending increases since 2022 mean that the government continues to rely on volatile resource revenue to balance its budget.
The Cost of Spending
The 2023 provincial budget projected program spending to reach $14,334 per Albertan, a significant increase of $1,603 per person (inflation-adjusted) compared to the 2022 mid-year budget update. This highlights the ongoing trend of elevated spending. Over a four-year period, from 2023-24 to 2026-27, the Alberta government is projected to spend $6,037 more per Albertan (inflation-adjusted) than it initially planned in the 2022 mid-year budget update.
Despite the government’s attempts to restrain spending, Alberta remains susceptible to budget deficits when resource revenue declines. If resource revenue were to fall to its average over the past 10 years, the projected surplus for this year would immediately transform into a deficit of $7.4 billion, even before the implementation of the billion-dollar tax cut promised by Smith.
The Need for a Broader Perspective
The program review initiated by Smith’s government presents an opportunity to align ongoing spending with stable government revenue sources. However, if the focus remains solely on finding savings for a single tax cut, Alberta will likely continue its boom-and-bust cycle, eventually leading to more deficits and debt. A comprehensive program review should address the broader issue of Alberta's spending habits and aim for sustainable fiscal management.
The new committee faces a formidable task. Finding savings while balancing political pressures and ensuring essential services remain adequately funded will require careful consideration and strategic decision-making.
The effectiveness of this initiative will ultimately be judged by its impact on Alberta's fiscal health. If the committee can achieve real savings without compromising vital services, it will be a significant accomplishment. However, if the program review becomes a mere political maneuver to appease the public and shore up Smith’s leadership, it will be a missed opportunity to address Alberta’s long-standing spending problem.
