Goodbye surplus policy, we hardly knew ya!

Putting aside the merits – or lack thereof – of carbon-capture technology and public transit, the provincial government’s recent commitment to spend $4-billion on these projects signals an important reversal of government policy and the return to ad hoc spending.

By Scott Hennig

Putting aside the merits – or lack thereof – of carbon-capture technology and public transit, the provincial government’s recent commitment to spend $4-billion on these projects signals an important reversal of government policy and the return to ad hoc spending.

The Stelmach government has numerous times touted their policy for unanticipated surpluses: one-third to new infrastructure, one-third to infrastructure renewal and maintenance, and one-third to savings.

It could be argued the $2-billion for public transit may fall under the new infrastructure category, but the $2-billion to be given to companies to develop carbon capture and sequestration doesn’t fall under any surplus category.

While thankfully it is not the creation of a new social program or an increase to department budgets (thereby necessitating annual spending commitments), it is nonetheless spending that falls outside of dictated government surplus policy.

More worrisome, it is an indication the Stelmach government will spend surplus dollars as they see fit, just like the Klein government did before them.

However, this wasn’t always the case under Premier Klein. In 1999, his government enacted a law declaring 75 per cent of surpluses had to be put towards the provincial debt. The law worked well and it stopped politicians from doling out surplus dollars like candy from a Canada Day float. This law was repealed in 2003 with the creation of the Sustainability Fund. Shortly before leaving office, Premier Ralph Klein declared a new surplus policy of one-third for savings, one-third for spending, and one-third to be given back to Albertans. Like his successor’s, the policy was soon ignored.

Why is ad hoc spending of surplus dollars a problem?

For starters, it undermines the budget process by taking away the duty of elected officials to debate and approve spending before the money is actually committed or spent.

Second, we don’t have a surplus yet. In fact, Albertans won’t know the full extent of the 2008-09 surplus until sometime in late June 2009.

To be sure, we are likely to have a surplus, especially considering the recent and dramatic rise in the price of natural gas and oil. Back-of-the-napkin math suggests if oil stays at the current price of $136/barrel and natural gas stays at $10.50 for the rest of the year, the windfall could be $11.8-billion at year-end.

However, the key words are “if” and “could.” Government assumptions for energy prices are based on a yearly average, and we are only three months into the fiscal year.

Finance Minister, Iris Evans, knows this. When delivering the 2007-08 fiscal year results at the end of June, she was questioned by reporters as to how large the 2008-09 surplus might be and what the government would do with the money. She smartly declined answering: “You don’t wear the bearskin ‘til you’ve shot the bear… It would be folly to predict.”

Yet, a mere two weeks later the Alberta government is not only predicting a surplus, but spending it. Apparently the bear has been shot, skinned and gutted – along with our surplus policy.

The lesson that should be learned is that surplus policies are only as strong as the elected officials’ will to follow them. A decade ago the Alberta government understood this, and passed legislation handcuffing itself. Without those shackles it is questionable whether we would be debt-free today. Clearly, it’s time to once again legally bind the spend-happy hands of our government.