Author: Ken Boessenkool
In the early 1990s, the Alberta government set the standard for having a clear and closely controlled fiscal framework. The focus of that fiscal framework was on eliminating deficits and debt. Today, Alberta faces a period of surpluses and savings, yet the fiscal framework has not been adjusted to reflect this reality.
Recent budgets have shown a propensity for rapid spending increases, for ad hoc capital spending plans, and a seemingly random system for putting aside money in the Alberta Heritage Savings Trust Fund-the Alberta government’s savings account. Alberta is not alone in losing its way in the new era of surpluses. This makes it all the more important for Alberta to once again set the standard and devise a new fiscal framework for a time of surpluses and savings.
Any new framework must recognize that the fiscal rules that emerged from the time of deficits and debts has produced chronic “unanticipated” surpluses as zero-deficit rules force policy-makers to be very conservative in their revenue and expenditure forecasts. If the zero-deficit rule is to be maintained-and the political implication of abandoning it would appear reckless at best-then new fiscal rules must address the issue of unanticipated surpluses. Further, if these substantial planned and unanticipated surpluses are to be saved-and the politics of doing so would appear noble at worst-then the new fiscal rules must also increase the incentives to save.
Through its Investing Wisely Project, the Canada West Foundation has been calling for greater fiscal discipline in Alberta and for a transparent and durable commitment to save a significant portion of its non-renewable resource revenues. This paper is an extension of that work and argues in favour of a legislated commitment to greater fiscal discipline and saving. The result will be greater accountability and improved fiscal performance-both of which Albertans expect and deserve.
The paper starts with a look back at the evolution of fiscal rules in Alberta and then discusses principles for creating fiscal rules in an era of surpluses and savings. The paper concludes with policy recommendations for a new Savings and Surplus Management Act for Alberta.