(This op-ed by Paige MacPherson, Alberta Director of the Canadian Taxpayers Federation, was published in the Calgary Herald on Saturday, January 2, 2016.)
Anyone could have seen this coming from a mile away.
Alberta’s credit rating has now officially been downgraded by bond rating agency Standard and Poor’s, tumbling from our coveted AAA status. The government’s poor budgeting and snowballing debt load played a big role, but the premier and finance minister are refusing to own up to it.
Bart Simpson rose to accidental fame in a classic Simpsons episode for coining his catchphrase, “I didn’t do it.” He recorded a rap song and developed a franchise based on it. But even Bart tired of his fame. You can’t go on saying “I didn’t do it” forever.
Yet, that’s exactly our government’s approach. In fact, it was just months ago in July when a Moody’s report first warned that the rapid pace at which Alberta was racking up debt could impact its then-AAA credit rating.
Moody’s is one of a few bond rating agencies that gives credit ratings to governments, similar to how an individual’s credit score determines the rates at which she can borrow. If an individual piles up debt, lenders view her as a higher risk, and increase interest rates on her new credit card usage. It works the same way for governments.
The Moody’s report said that the Alberta government would be watched closely, in “the absence of a credible plan to restore fiscal balance in the next few years, rebuild reserve funds and contain debt accumulation.” Coupled with eroding assets, continuing to rack up debt would put “downward pressure” on Alberta’s credit rating.
There’s no question the previous PC governments hold blame for actions and budgets passed prior to the NDP victory. However, Premier Notley and her finance minister can’t blame the PCs for ramping up spending and borrowing in the October budget.
After the release of the NDP government’s borrow-and-spend budget, two credit rating agencies (Moody’s and DBRS) warned that years of large deficits and big infrastructure spending put Alberta’s credit rating at risk. Moody’s said the budget was “credit negative,” and the National Bank said that, “in two years time, Alberta’s gross borrowing program could rival Quebec.”
At that time, Premier Rachel Notley brushed off the warnings. She said a credit downgrade wasn’t likely. She went on to praise her government’s bloated spending commitments. “At the end of the day, I can’t control what different bond-rating agencies will do or say,” our premier remarked.
Shirking responsibility for the negative impacts of reckless budgeting seems to be our government’s new modus operandi.
In response to Standard and Poor’s credit downgrade, Finance Minister Joe Ceci blamed it all on the falling price of oil. But Standard and Poor’s report stated that the province’s tax-supported debt burden was a major factor. Surely our finance minister read the report.
This government’s game of playing "pass the buck" is as unsustainable as its spending levels.
This credit downgrade matters for taxpayers because it can lead to an increase in the cost of public services.
Alberta racked up $6.1 billion in new debt in the October budget. Assuming an interest rate of 3 per cent over 15 years, taxpayers would pay $2.745 billion in interest over that time period. If the interest rate increased by just one quarter of a per cent, taxpayers would be on the hook for an additional $228.75 million.
The province’s credit rating has a real impact on the price of borrowing. And this government intends to borrow a lot.
The October budget committed the government to borrowing not just for long-term capital projects, but for day-to-day operations for the first time since 1993. That already ill-advised plan just became a lot more expensive.
Good governance means taking responsibility for poor budgeting decisions. That’s exactly what the Alberta government needs to swallow their pride and do. After all, admitting they have a problem is the first step to recovery.
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