It Could Be Worse

Today, our good friends from the Fraser Institute launched a volley of propaganda into Alberta's newspapers. Mark Milke, as usual, defied sense, logic and facts to talk about how undemocratic it is to ban large donations and put spending caps on elections. Less silly was the piece in the Financial Post about Alberta's woeful budgetary situation.

Yeah, it really is woeful. I do agree. You might remember me saying before that the government of Alberta was in a horrible fiscal situation years before the price of oil collapsed and these deficits started appearing. Or, I am crazy.

I must be, really, because I am here to tell you that all in all, our situation in Alberta isn't all that bad.

$11B is a scary large number. I would rather we didn't have a deficit at all - but as I've implied elsewhere, I don't believe it was avoidable this time. In fact there's good reason to believe it is better spending that money now and paying for it later than doing both in the future - which is exactly what we would one day be doing. That is another story though. Today let's focus on what matters. Let us call it:

The Oil Crash Misery Tour.

Like a chilly cruise, let's start off with what the Americans sometimes call the "great State of Alaska." Here we have an oil rich location that stole Alberta's heritage fund idea and ran with it. In no time at all they saved tens of billions of dollars more money than Alberta ever did, eliminated all forms of income and business taxes, and provided annual stipends to their population for many years in a row from their accumulated largesse. So what could have gone wrong?

Alaska's state budget is the princely sum of $6B US a year - adjusting for the exchange rate and Alberta's significantly greater population, they spend more money on government services than we do - and it was sustainable, but only if oil remained pricey and pivotal. Well, as we all know, it sure isn't these days. Bereft of oil revenue, the state accumulated a whopping $5.5B deficit in 2014 alone. Again, adjusting for the exchange rate and our population differences, ultra-conservative Alaska's per capita deficit was (and likely still is) an eye-popping $10,000 (American) per person. So only five times the deficit the Fraser Institute is complaining about in Alberta. Ouch.

Moving to gentler climes, South America has two incredible cases of oil's good graces to present us with. The one everyone is familiar with is Venezuela, a state now verging on utter political and economic collapse. The other is Brazil. It's economic and political crises of the past few years are all directly tied to the drop in the price of oil. Brazil's ambitious offshore oil developments - ones that exceed Alberta's in size, scope, and worst of all, newness, have laid a rotten egg on the Brazilian balance sheet. I can't say I'm much of an expert on either country, but it's hard to say if Venezuela was ever worse off than they are today; as for Brazil, they haven't had such a disaster on their hands since the 1980s, I would guess.

Moving east, we come to the great fiasco-states of the Middle East. Saudi Arabia is getting by by burning through an estimated $200B US a year. It instituted cuts to the allowances it pays it citizens, leading its citizens to jettison their servants onto the streets. Tens of thousands of migrant workers were laid off with no pay, no savings, no shelter, and no aid. This resulted in the baffling situation of India leading a humanitarian intervention in Saudi Arabia to keep these people from literally dying.

Of course, Saudi Arabia isn't just spending this $200B US on themselves. Egypt has been dependent on financial support from the wider Arab world going back years. The events of the Arab Spring amplified this need, to the tune of roughly $30B US in aid each year, of which two-thirds comes from Saudi Arabia. It is joined in its welfare status by neighbour Sudan, which has resorted to selling its soldiers to Arab states to serve in their military interventions. Nobody thinks either state could last longnwithout the billions of dollars they receive.

This is a short survey. I promise you that if you looked broadly enough, you would see similar stresses in every single oil exporting nation, province or territory. Saskatchewan and Newfoundland are suffering; so too is Texas, while Louisiana is even worse off. Alberta's fiscal situation needs to be placed in context, and in that context we're actually doing not good, but not bad either. So don't take the Fraser Institute at their word. Things aren't quite as bad as they would like.

Thanks for reading.