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For those who care about core government programs, the math should matter

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CALGARY, AB/ Troy Media/ February 16, 2015  ---   Ralph Klein saved Alberta healthcare and education His spending cuts led to tax relief, Mark Milke Fraser Instituteand increased spending on capital projects, healthcare and education

 Alberta Premier Jim Prentice and Finance Minister Robin Campbell have made it clear the province will reduce government spending in its March budget. In response, many people have alluded to the 1990s when the Ralph Klein government also cut expenses to grapple with an ongoing, deep budget deficit.

Not everyone agreed with those 1990s actions. Part of the opposition derived from understandable, if narrowly focused, self-interest. Spending cuts included rollbacks in government employee wages and in the broader public sector. So United Nurses of Alberta president Heather Smith, for example, looks on that era with disdain. In a Calgary Herald article, she claims the province is replaying the 1990s and “taking a chainsaw to health and other programs.”

That sort of rhetoric was popular among a minority of Albertans in the 1990s, but there was a good reason why Klein and his finance minister, Jim Dinning, acted when they did. Interest payments on provincial debt were consuming more and more tax dollars, diverting money away from the very programs Klein’s critics claimed to value.

In fact, in 1992/93, interest on the provincial debt cost the province $1.4 billion annually (or 9.9 per cent of $14.3 billion in total revenues).

For those who care about core government programs, the math should matter. That $1.4 billion was equivalent to 32 per cent of healthcare spending, 36 per cent of money directed to basic and advanced education, and 75 per cent of the social services budget.

When the provincial government cut spending, it was indeed bitter medicine. But the prudence eventually paid off. Despite criticism, the province soon spent substantially less on debt interest, freeing up tax dollars for other priorities, healthcare and education included.

By 2006/07, the last full budget year that coincides with Klein’s retirement (in December 2006), interest on the debt amounted to just $215 million (a mere six-tenths of 1 per cent of $38 billion in total provincial revenues).

Relative to core programs, that $215 million was just 7 per cent of the social services budget, 3 per cent of the money flowing into basic and advanced education, and just 2 per cent of the healthcare budget.  

The Klein-Dinning prudence also freed up fiscal room for capital expenses such as schools, hospitals and roads. Annual capital spending, as low as $821 million in 1996/97, averaged $2.6 billion in subsequent years until Klein retired, hitting $4.8 billion in his final year as premier.

Moreover, setting Alberta’s fiscal ship aright allowed for later tax relief, which helped make the province competitive and attract talent. Extra fiscal room also allowed for a resumption of Alberta Heritage Savings Trusts Fund deposits ($3.9 billion in total in the mid-2000s).

For the record, the actions by Klein and his colleagues were ultimately endorsed by a plurality of voters.

In 1997, after the Klein government cut spending, his party increased its share of the popular vote to 51.1 per cent from 44.5 per cent in 1993. Fiscal prudence – avoiding Greek-like fiscal paralysis with too-high debt and debt interest – was also approved by voters elsewhere. That included the NDP in Saskatchewan and the federal Liberals: both those governments also prudently pruned government finances.

The 1990s debate over spending and taxing is obviously back. It appears a significant cohort of Albertans understand government spending has become unaffordable. According to a recent poll, only 15 per cent of Albertans favour tax hikes, and 43 per cent said the government should cut spending. (The rest said the province should borrow more or had no opinion.)

That 43 per cent seems to understand that the 1990s-era reductions in provincial spending were difficult, but necessary. Those actions rescued tax dollars from the debt interest payment pit. That freed up revenue for every other conceivable priority: tax relief, Heritage Fund deposits, capital projects – and, Klein critics take note – healthcare and education spending.

Mark Milke is a Senior Fellow with the Fraser Institute and author of The Rhetoric and Reality of Alberta’s Deficits in the 1980s, 1990s and Now.

By Mark Milke
Senior Fellow
The Fraser Institute
The Fraser Institute
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Troy Media ©
Troy Media

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