Sources of Debt Accumulation in Resource-Dependent Provinces

• Main Author: Ron Kneebone
• Format: Article in Journal/Newspaper
• Language: unknown
• Subjects: Newfoundland
• Online Access: http://www.policyschool.ca/wp-content/uploads/2016/03/resource-dependent-kneebone.pdf

Governments in provinces relying on natural resource commodities for significant amounts of revenue face the distinct challenge of unpredictably fluctuating budget circumstances. As politicians routinely point out, much of that challenge is in the volatility of global commodity prices. But a big part of it is actually the policies of the governments themselves. In fact, when effects of commodity prices, economic cycles and fiscal policy are separated from one another, one of the biggest impacts on government debt over the last 30 years in Canada’s four resource-dependent provinces — Alberta, Saskatchewan, British Columbia and Newfoundland and Labrador — has been government policy. While years of booming economies have offset years of busts, virtually all the debt racked up by these provinces over more than three decades has been a combination of movements in commodity prices and political decisions. In Alberta, over three periods since the early 1980s, totalling more than 15 years cumulatively, it was policy — not energy prices or economic factors — that had the biggest impact on government debt levels. From 1988–89 to 1993–94, Progressive Conservative policies were the biggest factor in raising Alberta’s debt, and from 1995–96 to 1999–2000, the Klein government’s policies were the biggest factor in reducing Alberta’s debt. The policies of then premier Ralph Klein also played the biggest role in reducing debt from 2001–02 to 2003–04, while from 2006–07 to 2013–14, the policies of the Stelmach and Redford governments outweighed economic and commodity-price effects in ways that both reduced debt at times, and then raised it again. Over the entire period from 1982–84 to 2013–14, PC government policy increased Alberta’s debt ratio by 9.5 percentage points of GDP, while the business cycle decreased it by only one percentage point, and the commodity-price cycle decreased it by only 1.9 points. In Saskatchewan, the policy component raised the provincial debt ratio by 11.6 percentage points of provincial GDP from ...