Robbing Peter to pay Paul seems to be the way oil-rich Saskatchewan and Alberta took to tabling their new fiscal year budgets in March.
Both provinces chose to borrow money to cover up gaping holes in their coffers due to a steep decline in oil revenue that totals $661 million in Saskatchewan and about $7 billion in Alberta.
Saskatchewan is borrowing about $700 million this year to spend on roads and schools while Alberta is borrowing $5 billion this year.
Both governments claim this has enabled them to create balanced budgets.
On a personal level, that’s like paying for your phone bill with a high interest credit card. The bill is paid, but your overall debt keeps going up.
The rationale for borrowing to make up for lost oil royalties is that these are both election budgets so common sense goes out the window.
Saskatchewan Premier Brad Wall will likely go the polls in 2016 while Alberta Premier Jim Prentice used his budget to call an early May 5 election with opposition parties in disarray. (Saskatchewan would go to the polls this fall, except that it’s fixed date election law shifts our election back if a federal election occurs at the same time.)
If budgets were left to financial experts, a drop in revenue from oil would result in a decline in spending, but politicians are short-term thinkers.
So, in Alberta the burden for fiscal mismanagement is being passed on to consumers by way of tax increases with negligible cuts to spending.
Saskatchewan didn’t raise taxes, but borrowing money to maintain spending suggests they should have.
With oil revenue shortfalls facing both provinces, spending cuts would be the logical best way to balance budgets.
It seems as if both provinces are holding out hope that oil revenues will quickly rebound to enable them to cover their borrowing tracks.
Counting your eggs before they hatch is a bad way to budget as it could take years before oil prices return to the $100 a barrel level as they were last summer.
Saskatchewan’s economy is more diversified than Alberta’s, so the impact of lower oil revenue is less dramatic, but the shortfall still led the province to borrow against its losses.
Alberta is just beginning to talk about a diversified economy as the reality of losing $7 billion in oil royalties sinks in.
Continued diversification would go a long way to helping both provinces curb their reliance on oil revenues that go and down with the price of oil which is out of their control.
What they can their control is the ability to cut spending and set priorities.
Does Saskatchewan really need to spend $700 million of borrowed money on roads, schools and hospitals this fiscal year?
How about selecting one or two priority projects and putting the rest on hold until the money is there?
Does Alberta need to continue to spend half of its budget on public sector wages when the revenue isn’t there to support all the province’s spending programs?
This year 31,000 oil workers in Alberta are expected to lose their jobs while their budget assumes it is business as usual with oil prices at rock bottom.
An election isn’t going to change the budget either since the Alberta PC party is in no danger of losing power and it’s their budget.
Likewise for Wall when voters go to the polls in 2016. There is little chance the Saskatchewan Party will be ousted and the province will be still be on the hook for $700 million of borrowing, plus interest.
The definition of a balanced budget is that revenue at least matches expenses without the borrowing card tricks that politicians like to play when elections loom.
Ten years ago Albertans celebrated the elimination of the provincial debt with Ralph Klein.
Such celebrations are a long way off for both provinces without that brand of tough love to balance the books.
