The Alberta Government Deficit: What’s the Problem?

The government of Alberta recently released – on August 23 – an update ( on its financial situation.  It estimated that the deficit for the current fiscal year would be some $10.9 billion, $527 million higher than forecast at the time the province’s budget was brought down in April of this year.  Total revenue is now forecast to be some $708 million higher than previously expected and expenditures $1.2 billion higher.  Most of the increase in expenditure results from the wildfires that recently devastated Fort McMurray.

Not surprisingly the update was greeted in many quarters with concern – to put it mildly!  The political opposition, the popular press and significant elements of the populace expressed opposition to the fact that the government was willing to live with – indeed deliberately adopt –  substantial deficits.

Some – many? – would argue that the government ought to implement measures immediately  – primarily cuts in expenditure – to reduce the deficit.

But concern over the government’s deficit at this time is misplaced.  In fact the government’s policy stance, confronted as it is with a severe decline in economic activity, is broadly correct.  Its plan to invest heavily in  provincial infrastructure is appropriate and necessary.  Maintaining and improving infrastructure is necessary both to preserve and improve the quality of life of the population and to facilitate and improve  economic productivity in the longer term.  Further, undertaking social investment at this time makes good economic sense: the high unemployment rate means resources – workers and equipment – are available and very low interest rates mean the funds can be borrowed at historically low rates of interest.  And it is appropriate to pay for infrastructure investment with borrowed funds; future generations as well as the present generation will benefit from it.  If there was ever a propitious time for undertaking social infrastructure investment in Alberta, this is it!

One would think that the government would be making this argument loud and clear, especially since they have a report, authored by a former federal Deputy Minister of Finance and Governor of the Bank of Canada – one David Dodge – that makes a strong case for undertaking such investment.  Instead Dodge’s analysis, which was attached as an Appendix to the Strategic Plan published as part of Minister Ceci’s April Budget ( has been largely ignored.  The only detailed commentary  I’ve seen in the press was a column in the Calgary Herald by its business columnist Deborah Yedlin (  Yedlin’s column is an accurate reflection of Dodge’s analysis and worth reading if one is not prepared to wade through Dodge’s detailed and somewhat technical analysis.

In a nutshell the arguments in favour of government investment in times of high unemployment are:

  • it helps to alleviate unemployment of labour and other resources;
  • it is appropriate to finance public investment by borrowing just as is the case for private investment and it makes sense to borrow when interest costs are at extremely low levels;
  • undertaking social investment when economic activity generally is high would likely ‘crowd out’ private investment, enhance inflationary pressure in the economy and be expensive as both financing costs and the costs of workers and the necessary equipment would be relatively high;
  • Alberta has virtually no provincial government debt; it’s in good fiscal shape to incur borrowing.

The government of Alberta deserves credit for publishing this analysis but why does it not ‘spread the word’ much more widely, continually and vociferously?

And why are we, as a society, willing to be relatively complacent about historically high levels of household debt relative to income but not about very low levels of government debt – in Alberta’s case – relative to provincial GDP?






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