Breakenridge: Dare to Dream Alberta will handle the latest windfall responsibly

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Not for the first time, and hopefully not the last, Alberta has found itself sitting on a torrent of resource revenue.

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It’s not the first time, and almost certainly not the last, that the Alberta government is under all kinds of pressure to spend that extra revenue. If we end up wasting this latest windfall, it wouldn’t be the first time either.

All of this may fall into the “good trouble to have” category, but some decisions need to be made regarding the management of this latest surplus and any subsequent surpluses that may follow. Ideally, those decisions would be prudent and focused on the long term. However, between the heated leadership race within the ruling party and next spring’s election campaign, we may be short.

Regardless of how this latest surplus is allocated, the fact that it exists is truly remarkable given what was originally forecast for this fiscal year that just ended. The budget presented in February of last year projected a huge shortfall of just over $18 billion, thanks in large part to resource revenue slipping to an expected $2.85 billion.

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Fast-forward to last week and the year-end budget update: That huge deficit is now a $3.9 billion surplus fueled by a remarkable recovery in resource revenue, which more than quintupled to just over $16 billion, the highest level ever seen. The accompanying economic recovery has also boosted overall tax revenue and investment income, which helped offset a slight increase in expected spending.

Based on the current price of energy and the forecasts in the budget presented earlier this year, it seems likely that we will see resource revenue reach even new heights. So what’s the plan?

The signs so far have been really encouraging. The Alberta government has made a modest $1.5 billion contribution to the debt (which helps to slightly reduce debt service costs) and legislation will be introduced this fall to increase the Alberta Heritage Fund’s contribution limit.

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Premier Jason Kenney has also hinted that an announcement will come this week about some additional support for Albertans to deal with stubbornly high levels of inflation.

Keep in mind, though, that we’ll have a new premiere in October and then maybe a new premiere again in May. We could see some sharp changes in policy.

What we need to guard against is the temptation to make lasting structural changes in spending or income that will leave us exposed once this latest run of windfall ends.

Previous boom cycles have given governments the cover to offer both low levels of taxation and high levels of spending. But the large deficits that inevitably emerge in subsequent downturn cycles should have already taught us that such an approach is neither sustainable nor responsible.

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If we think that the overall annual spending should increase, then we should find the additional tax revenue to cover that. If certain departments need a boost, like health care, for example, then perhaps other departments should face a reduction. If we decide we want taxes to go even lower, then we should cut spending accordingly. We should not act as if this new income is a permanent annual feature.

However, it’s not unreasonable to use a short-term income boost for some short-term spending decisions. The pain that inflation is inflicting on Albertans is not separate from the very circumstances that created this surplus. It makes sense to explore one-time refunds or temporary targeted assistance.

Ultimately, however, we must take advantage of this roller coaster ride to help us get out of it once and for all. Paying off debt and building savings should be the focus. Ultimately, once we’ve eliminated interest payments on debt and increased interest payments on our savings, we may have the flexibility to responsibly increase spending, reduce taxes, or both.

“Afternoon with Rob Breakenridge” airs Monday through Friday from 12:30 pm to 3 pm on 770CHQR and from 2 to 3 pm on 630CHED. [email protected] Twitter: @RobBreakenridge