British Columbia and Alberta have some things in common. Both are unusually dependent on natural resource-based industries to drive their economies and supply the exports that are vital to sustaining prosperity. Both have been experiencing robust population growth over the last few years. And neither has been well served by a distant national government in Ottawa with a policy thrust focused more on keeping natural resources in the ground than on harnessing them in an environmentally sustainable way for the benefit of all Canadians.
Recently, B.C. Premier David Eby and Alberta Premier Danielle Smith released their budgets for the coming year, and it is here where it becomes clear that other than sharing a border and natural resource advantages, not much else binds the two provinces together. Perhaps the greatest schism is the difference in the two premiers’ economic visions.
To begin with, Alberta’s updated fiscal plan aims to stay in the black, with small operating surpluses expected over the forecast horizon. B.C. is taking a different path, one featuring unprecedented annual deficits as the NDP government ramps up spending in advance of the fall 2024 election and gives free rein to its ideological inclinations to expand the size and reach of government. The Fraser Institute recently reported that in the three years from the onset of the COVID-19 pandemic in 2020 to Q2 of last year, 94 per cent of net new payroll jobs created in B.C. were in the public sector. This lopsided labour market is one sign of B.C.’s deteriorating business climate.
Returning to the fiscal outlook, B.C. is planning to incur a combined operating deficit of $28 billion from 2023-24 through 2026-27, which is a marked departure from the surpluses posted over most of the preceding dozen years. For its part, Alberta is banking on continued budget surpluses, albeit significantly smaller than the $5.2 billion in black ink projected for the current fiscal year (2023-24).
It is worth noting that Alberta’s surpluses are set to shrink beyond 2023-24 in part because of assumed softer global oil markets—the province garners up to one-quarter of its revenues from energy royalties. Should oil prices trade higher than the government’s forecast, the small surpluses pencilled into Budget 2024 would increase significantly, further strengthening Alberta’s financial position over the medium-term.
Turning to government spending, while both provinces are facing pressure in areas like health care and housing costs, owing in part to surging populations, the idea of spending restraint is clearly less popular in Victoria than Edmonton. The BC NDP government intends to boost expenditures by eight per cent in 2024-25. In Alberta, expenditure growth next year will come in at roughly half of that figure.
The two provinces have both embraced ambitious capital spending plans, which involve long-term borrowing outside of the confines of the annual operating budget. Total B.C. public sector capital spending will climb to $18 billion to $19 billion per year over the period from 2024-25 to 2026-27. Alberta’s revised capital plan foresees $25 billion being spent on infrastructure and other public sector capital assets in the next three years. Public sector capital outlays in B.C. include borrowing undertaken by large Crown corporations like BC Hydro and ICBC, which don’t exist in Alberta.
Alberta also has structural advantages over B.C. and the rest of the country in the form of lower tax rates and lower debt levels. Alberta has no provincial sales tax and a lower business income tax rate (eight per cent versus 12 per cent in B.C.). And Alberta’s public sector debt is roughly 9.3 per cent of GDP and on track to decrease in the coming years, whereas B.C.’s is currently 17.6 per cent of GDP and is expected to climb to 27.5 per cent by 2026-27.
Overall, the two budgets suggest Alberta is very well positioned to continue to lead the country in economic growth, business investment and wage increases in the next few years. Albertans already enjoy an average GDP per person almost $28,000 higher than the comparable figure in B.C. Alberta should continue to reap the advantages of lower taxes and healthier provincial finances.
The extraordinary growth in government in B.C., combined with its large operating deficits and fast-rising debt-to-GDP ratio, mean that taxpayers should brace themselves for the inevitability of significant tax hikes, lagging investment and lower incomes in the future.
Chris Gardner is CEO of the Independent Contractors and Businesses Association and president of ICBA British Columbia. Mike Martens is president of ICBA Alberta.
