Alberta has a revenue problem, not a spending problem

If you’ve been paying attention to Alberta politics since the UCP was elected, one phrase you’ve probably heard is “spending problem”.

For example, last year, Jason Kenney, newly-elected premier, spoke in a televised broadcast in advance of the UCP’s first budget. In it, he said those very words: “We have a spending problem.”

Of course, he’s not the only one.

A month before, Janice McKinnon, who had chaired the “Blue Ribbon Panel” tasked with reviewing provincial spending, said the same thing.

The UCP party said it:

While the NDP opposition and their friends are demanding higher taxes and a PST, we were elected to fix Alberta's spending problem without raising taxes.

And we will. #ableg https://t.co/e43fQe55Th

— United Conservative Caucus (@UCPCaucus) September 5, 2019

Several MLAs have said it:

And so on.

So, I thought I’d take a look at past government spending, compare it to past revenue, and see if anything sticks out.

I originally planned to compare data over the last 30 years, but I found that comparing the data was difficult because accounting practices changed over time.

For example, in the Historical Fiscal Summary section of the 2014–2015 annual report, the PC government had “other own-source revenue” for 2008–2009 as $5,027 million.

When we look under the Revenue Highlights section of the 2009–2010 annual report, we see that net income from commercial operations; premiums, fees and licences; and “other” ($2,211 million, $1,991 million, and $821 million) add up to $5,023 million, showing that they make up the “other own-source revenue”, but off by a few dollars.

However, in their first annual report, the Alberta NDP started separating out “premiums, fees, and licenses” as a distinct line item in the historical summary.

But notice that there’s a huge jump from the “premiums, fees, and licenses” listed in the 2009–2010 annual report of $1,144 million to the $3,356 million listed in the 2015–16 annual report.

That’s because they changed what was included in the premiums, fees, and licenses. Compare these two “premiums, fees, and licenses”. The one on the left is from the 2009–10 annual report, and the one on the right is from the 2014–2015 annual report (which the NDP compiled).

Prior to the 2014–2015 annual report, tuition was included under “Other own-source revenue”. The NDP moved it into premiums, fees, and licenses, where it’s been ever since.

These numbers are further skewed by the switch in 2014–15 from using “fiscal plan basis” data in the historical fiscal summary to consolidated financials, which made 2008–09 revenue, for example, jump from $35,805 to $39,325 million. Under the “fiscal plan basis”, 2008–09 premiums, fees, and licences alone are listed as $1,991 million in the 2009–10 annual report but as $2,603 when you scroll down to the consolidated financials.

Confused yet?

Anyhow, for simplicity’s sake, I decided to look at just the data going back to 2008–09 and using the most recent historical fiscal summary to do so.

To start, here’s revenue over the last 12 years, compared to expenses.

Clearly, expenses have been going up. In fact, expenses increased about 45% over the last 12 years, from $40.3 billion in 2008 to $58.4 billion last year.

Revenue, on the other hand, increased only 17.5% during the same period: from $39.3 billion to $46.2 billion.

So, if revenue is growing by only 17.5% yet expenses are growing by 45%, then clearly that means we have a spending problem, right?

Well, that’s not the only explanation. For example, what if the amount we’re increasing spending by is normal, but the amount we’re increasing revenue by is too low?

Take a look at this chart, which shows how much expenses have grown each year.

Over the last 11 years, government spending has been pretty inconsistent, ranging from increasing by nearly 9% in 2013–2014 to decreasing by 2.75% the following year. On average, Alberta’s spending has increased by 3.49% every year.

But before we side with the UCP rhetoric too hastily, let’s look at a few other things.

This chart shows how much population and inflation has changed in Alberta over the same period. The numbers at the top of each bar is the two increases combined. Population and inflation, in total, have varied from a 0.25% decrease in 2009–10 to a 4.7% increase in 2014–15.

I find it interesting that the year with the highest combined increase for population and inflation is the same year with the largest decrease in spending during this 11-year period.

On average, population and inflation increased about 3% a year. That means that, on average, spending increased only half a percentage point per year more than population and inflation. Spending increases were barely more than enough to cover increased demand through population and increased costs through inflation.

Here, let me show you.

The blue line in this chart is what spending actually looked like. The red line is what spending would’ve looked like if we increased exclusively to cover population and inflation growth.

Not much difference, eh?

In fact, we’d have ended up spending $58.1 billion last year instead of the $58.4 billion we actually spent.

And if we’ve been increasing spending basically to cover inflation and population growth for at least the last 11 years, it makes you wonder what exactly the UCP government plans to cut.

So, that’s the expense side of things. Let’s look at revenue for a bit.

Here’s the first chart again.

As we already showed, expenses were definitely increasing over the last 11 year. And clearly, this chart shows that the same can’t be said about revenue.

Like I said earlier, revenue, increased only 17.5% between 2008–09 and 2019–2020, from $39.3 billion to $46.2 billion.

But that’s only if we look at the starting point and the end point. The end point wasn’t the highest point, however. The high point for revenue was actually in 2018–19, the NDP’s last year in power. That year, Alberta reached $49.6 billion in revenue.

That’s a 26% increase in revenue.

Still not as big an increase as the 45% that spending saw, especially when you consider the $3.3 billion drop in revenue last year.

Remember how I said that expenses increased each year by an average of about 3.5%? Well, revenue increased at only 1.82% a year on average over the last 11 years.

Unlike expenses, which more or less increased every year, revenue has been less robust, with only 6 of the last 11 years seeing increases, and for one of those years, the increase was only 0.67%. Expenses, on the other hand, increased 9 of those 11 years.

Let’s look at it another way.

Here’s spending and revenue per capita.

Last year, Alberta spent $13,261.11 per person, yet they took in $10,500.57 per person. Compare that with $11,063.95 per person in spending in 2008–09 and $10,808.08 per person in revenue.

We spent more per person last year than we did in 2008–09, but we took in less revenue than we did 12 years ago. Expenses per person are increasing and revenue per person is decreasing.

On average, Alberta’s spending per capita increased 1.71% each year. Inflation, interestingly enough, averaged 1.25% a year. That means our per capita spending increased enough to cover inflation, with less than half a percentage point to cover other increases.

Revenue per capita, however, increased only 0.06%, on average.

Clearly, it’s not expenses that are the problem. Our spending hasn’t been out of control. It’s barely been covering population increases and inflation.

No, our problem lies with revenue.

Alberta must continue covering population and inflation increases, but we can’t do it without increasing revenue. It’s just not possible any other way.

Now, let’s break down revenue a bit more.

First, let’s compare where revenue came from in 2008–09 and last year.

	2008–09	2019–20
Resource revenue	30.30%	12.84%
Personal income tax	22.14%	24.33%
Other own-source revenue	11.66%	7.27%
Federal transfers	11.64%	19.63%
Corporate income tax	10.81%	8.88%
Other tax revenue	9.71%	12.43%
Premiums, fees and licences	8.53%	8.50%
Investment income	-4.80%	6.12%

In 2008–09, resource revenue was the single highest source of revenue, coming in at nearly a third of all of Alberta’s revenue. Personal income tax was next, at 22.14%. If you add up all tax revenue, it comes to 42.66% (compared to 45.64% last year).

Last year, however, resource revenue was in third place, but making up less than half of what it used to contribute. Personal income tax is now the largest contributing factor to provincial government revenue, at nearly 1 in 4 revenue dollars coming from provincial income tax.

And 93% of that personal income tax is on income in the lowest tax bracket. Income in the higher tax brackets makes up only 7% of personal income tax revenue.

In second place last year was actually federal transfers. The federal government sent us more money than we received from any one of the other revenue sources last year, other than personal income tax. More than corporate income tax, more than resource revenue, more than investment income. Everything.

Here’s what revenue looks like if we add up all the years since 2008–09:

	2008–2020	% of revenue
Personal income tax	$119.992	22.61%
Resource revenue	$87.284	16.45%
Federal transfers	$78.459	14.78%
Other own-source revenue	$62.450	11.77%
Other tax revenue	$58.848	11.09%
Corporate income tax	$52.448	9.88%
Premiums, fees and licences	$41.205	7.76%
Investment income	$29.983	5.65%
Total revenue	$530.669	100%

Personal income tax has been, by far, the largest contributor to government revenues, with resource revenue and federal tax dollars coming in second and third place.

Over the last 12 years, there have been only 3 years when personal income tax wasn’t the top contributor to provincial revenue. Each of those years, resource revenue was in top place.

However, resource revenue hasn’t been the top contributor since 2011–12. And it hasn’t been in second place since 2014–15. In fact, last year was the first time since 2014–15 that it was anything higher than 4th place, and it was last place in 2016–17.

Here’s what contributions look like for the last 5 years:

	2014–2020	% of revenue
Personal income tax	$56.013	24.57%
Federal transfers	$39.812	17.46%
Other tax revenue	$29.935	13.13%
Other own-source revenue	$26.121	11.46%
Resource revenue	$22.232	9.75%
Corporate income tax	$20.390	8.94%
Premiums, fees and licences	$18.954	8.31%
Investment income	$14.545	6.38%
Total	$228.002	100%

Resource revenue has made up under 10% of Alberta’s revenue over the last 5 years. Federal transfers have contributed nearly double that. And personal income tax has contributed 1 in every 4 dollars of government revenue.

Over the last 6 years, 91–93% of those personal income tax dollars have been generated on personal income that falls under the lowest tax bracket, which is currently $131,220.

Corporate income tax is in 6th place. And that’s back when the corporate income tax rate was at 12% (well, 11% for the last year in the data set). Today, it’s 8%.

In short, Alberta has been running a budget as though resource revenue will bounce back any moment, all the while expecting workers and the federal government to pick up the tab in the meantime.

Alberta doesn’t have a spending problem; it has a revenue problem.