Premier Ralph Klein's recent speculation about spending the province's unbudgeted surplus on a new round of prosperity cheques for Albertans highlights a serious problem with Alberta's budgeting process -- one that has received surprisingly little public attention.
The May 2006 report Fiscal Surplus, Democratic Deficit by the University of Alberta's Parkland Institute, not only correctly predicts this year's actual surplus, it also points out that the Alberta government has been wrong in its revenue projections for at least the last thirteen years.
More specifically, the report calculates that in each of the last six years, the government has underestimated revenues by an average of $4.3 billion per year.
That works out to a margin of error in most of those years of between 20 and 25 per cent. We now know that in the 2005-06 fiscal year, the government actually missed on its revenue projections by almost 35 per cent.
Only one of two things can explain erring on the budget by this much this consistently.
The first possibility is that the provincial government is incompetent, and that the budget numbers might as well be generated by TSN's Maggie the macaque.
Given Finance Minister McClellan's assertion to me recently that the government "consults with a number of private sector forecasters, some of which are publicly available, and some of which are provided on a confidential basis," and the tremendous number of MBAs, CPAs, and CMAs working for the government, incompetence is unlikely.
That leaves only the second possibility -- that the government purposefully underestimates revenues year after year in order to achieve political ends.
This is the argument that is detailed in the Parkland report mentioned above, and that is largely being missed in discussion of the current unbudgeted surplus.
The government would argue that they are simply being prudent by building in a cushion in case of an economic downturn, or significant drop in energy prices.
The problem with that argument is that the government has already built in significant cushions in other places, including the sustainability fund, to protect against economic volatility.
A further economic cushion is provided by the fact that these are not break-even budgets to begin with.
In each of the last six years, we are talking about budgeted surpluses of between $3.7 billion and $7.7 billion per year.
Low-balling projected revenue numbers accomplishes two key political goals for the government. The first is that it enables the government to claim poverty and underfund needed programs.
Over the years, we have heard these claims in the areas of health care, education, in trying to justify offensively low social assistance rates, and even in avoiding needed infrastructure projects.
Most recently, we have heard these claims in response to complaints from school boards about crumbling schools.
Hiding revenues also allows the government more freedom in making spending decisions once the unbudgeted funds comes in, because the decisions can be made in cabinet and passed by the legislature after the fact.
This benefit is enhanced by the possibility for high-profile and highly popular spending announcements outside of the formal budget process, and away from the scrutiny and questioning of the opposition.
This attitude was confirmed by Mr. Klein last fall when he told the media that the unbudgeted surplus was none of the legislature's business. Given Alberta's track record in budgeting, what the premier was saying was that the legislature should have no say in how to spend 20 to 25 per cent of the province's revenue.
Once again this week, after registering another huge unbudgeted surplus, the premier is looking for the most politically expedient way to spend the money. And because it is the middle of summer, the final decision will not be made by the legislature.
This bypassing of the legislature -- the venue where government is supposed to be held accountable for how they spend our money -- by constantly low-balling revenues, is a huge part of the democratic deficit in this province.
Albertans understand that spending decisions must be made democratically and in the public interest, not behind closed doors and for political gain.
It is time the government understood this too.
Ricardo Acuña is Executive Director of the Parkland Institute, a non-partisan public policy research network housed at the University of Alberta. He is also part of the committee that authored Fiscal Surplus, Democratic Deficit: Budgeting and Government Finance in Alberta.
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