Everybody Hate Alberta: Provincial Spending Edition

In the Vancouver Sun, Scott Hennig leads the chorus of Alberta-centric hatery with an accusation that Alberta’s spending is way out of line. Alberta tops the provinces in government spending per capita. So what? Alberta also tops the provinces in GDP income per capita. This is another example of misinterpretation of economic data in journalism, and I’ll show you how he’s committed a massive error of omission that leads his readers astray.

Let’s start with this:

Alberta’s right-wing, fiscally responsible, red-tape hating, big government-loathing, strong and free “Conservative” government will spend $37.8-billion on government programs in fiscal 2008-09. What makes this figure exceptional is that it is higher than spending in British Columbia, where the government is slated to spend “only” $37.7-billion this year and they have nearly a million more citizens than Alberta.

If you break down provincial program spending per citizen, Alberta has held the top spot in Canada for a couple of years. It is now pulling away from the pack. In the West, Alberta spends $10,771 per person each year. That’s about one-third more than B.C.’s $8,001, Saskatchewan’s $8,090, and Manitoba’s $8,026. If a foreign academic was given this information and asked to determine which province is governed by a political party favouring ever-bigger government, Alberta would sadly win the contest.

This is how Mr. Henning is looking at the data: simple spending per capita.

This is using planned 2008 expenditures and 2007 population numbers. My numbers differ from Hennig’s because he hasn’t cited his sources.

Of course Alberta’s spending per capita is 35% higher than British Columbia, Saskatchewan and Manitoba. That’s because Alberta’s GDP per capita is at least that much larger than other provinces. Using expenditure-based data, (I’ll address that in a minute), Alberta’s GDP per capita in 2007 was nearly $75,000 per person. That’s 45% larger than Saskatchewan’s, 72% larger than British Columbia’s and 80% higher than Manitoba’s.

Here’s how the provinces stack up:

Alberta has quite a high level of GDP per capita. However, these are expenditure-based numbers, which include Alberta’s presumably high levels of government spending. So, let’s look at Alberta’s provincial government spending (planned, for 2008), as a percentage of last year’s gross domestic product. This tells us how much of that GDP is made up of ‘gubmnt’ spending:

When we look at Alberta’s level of spending in relation to its GDP, it becomes evident that Alberta’s total spending makes up a very small fraction of overall economic expenditures.

Simple logic: the reason Alberta can spend $10,000 per capita is because it earns $75,000 per capita.

Let’s look at it this way: for every dollar in the economy, how much is made up of government dollars? Here’s how it stacks up:

Alberta has the lowest level of government expenditures relative to the size of total expenditures in the economy. For every dollar spent into the Alberta economy, government spending accounts for roughly 13 cents. In BC, it’s 19 cents per dollar.

Let’s get back to hennig’s article, wherein he lambastes this ‘wasteful’ spending:

Alberta’s program expenditures do not include all of its capital expenditures for the year, which also rank first in the nation when measured by citizen or by total dollars spent. The figures are striking: Ontario, home to 13 million Canadians, will spend $7.5 billion on capital projects this year. Alberta, with a population slightly more than a quarter of Ontario’s, has budgeted $9 billion. Edmonton is tossing around cash like it will be pumped from the ground forever. This policy has already cost Albertans more than they will ever know.

Of course it costs an arm and a leg to build anything in Alberta: the government has to compete with private industry demand for construction personnel, equipment and materials. Have a look at Alberta’s inventory of major projects (pdf). Alberta has $274 billion in planned, progressing or proposed projects on its slate. Planned infrastructure improvements account for roughly $20 billion, which is less than 10% of total planned expenditures province-wide.

Alberta’s infrastructure needs this spending. In their effort to eliminate the provincial debt, the Kleinsters put the province into an infrastructure deficit. Traffic in Calgary and Edmonton is becoming more insane by the day, not to mention the LRT transit system. Edmonton’s roads are abysmal to say the least, and the Highway to Hell (HWY 63) - the main artery for oil sands-related equipment, personnel and materials - is a weekly nightmare for many working Albertans. This lack of infrastructure actually costs Albertans lost potential as deliveries wait in congested traffic, drivers get killed on HWY 63, and potholes put semis out of commission.

So where the heck is Hennig right? I don’t agree with how he gets there, but I do agree with his point: Alberta needs to think about the future. I don’t mind government spending here in Alberta, as long as that spending will diversify Alberta’s economy in the long run. As an economist, I realize there’s a trade-off between saving for tomorrow and spending for today. It’s all fine to build roads and schools. Those will serve us long into the future. But we’re far behind Alaska and Norway when it comes to investing those resource revenues outside the country, where they are less prone to drive up living costs. If Alberta is falling behind, it’s in this specific area. We have $17 billion in the Heritage Fund. Norway has $400 billion.

There’s something wrong with that picture.