Comparing Alberta s Economic and Fiscal Performance with Other North American Energy Jurisdictions

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1 Comparing Alberta s Economic and Fiscal Performance with Other North American Energy Jurisdictions Livio Di Matteo, Fraser Institute Student Seminar, Calgary, Alberta, January 17, 2015

3 Economic Performance Compares selected resource intensive provinces and states with respect to growth in income, employment, and productivity levels to gauge their relative economic performance over the last decade. Fiscal Performance Compares selected resource intensive provinces and states with respect to deficits, public debt, tax mix and investment in sovereign wealth funds. How well does Alberta performs economically and with respect to public finances when compared to other resource-based economies in North America?

4 Selecting the Jurisdictions The method employed in this paper to select provinces and states for analysis is the share of a province s economy (GDP) represented by the energy sector and the share of a state s economy (GDP) represented by the oil and gas sector.

5 Importance of Energy & Oil and Gas Sectors (2012 Canada, 2011 USA) Percent of GDP Percent of GDP BC AB SK MB ON QC NB NS PEI NL

6 ECONOMIC PERFORMANCE

7 Average Annual Real GDP Growth (%), Percent Change

8 Population Growth, Percent Change 2001 to 2012 Newfoundland & Lab Louisiana Saskatchewan North Dakota Oklahoma Alaska Wyoming Colorado Texas Alberta Percent Change

9 Real Per Capita GDP (US PPP$) 70,000 60,000 Real Per Capita GDP (PPP$) 50,000 40,000 30,000 20, ,000 0

10 Average Annual Per Capita Real GDP Growth (%), Percent Change (Average)

11 Average Annual Rate of Total Employment Growth(%), Annual Percent Change

12 Average Annual Unemployment Rate (%), Percent

13 Productivity: Real GDP Per Worker in 2012 (US PPP$) 140, ,000 Real GDP per Worker (US PPP$) 100,000 80,000 60,000 40,000 20,000 0

14 Productivity Growth: Average Annual Growth in Real GDP per Worker, Average Annual Growth

15 Economic Performance: Assessment Overall, Alberta s economy performed relatively well over the last decade when compared with other energy-producing provinces and states although there are areas of concern.

16 Productivity Concern Over the period, Alberta ranked last with respect to its average growth rate in real per worker GDP. Simply put, Alberta s growth in per worker GDP (as a measure of productivity) and average growth in per capita GDP indicate that much of the province s economic growth is coming from expanding inputs like labor rather than improving the productivity (and thus income) of individual workers.

17 FISCAL PERFORMANCE

18 Provincial Surplus/Deficit as a Share of Total Government Spending 50.0% 40.0% 30.0% Share of Provincial Spending 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% Alberta Saskatchewan Newfoundland & Lab

19 State Surplus/Deficit as a Share of Total Government Spending 80.0% 60.0% 40.0% Share of State Spending 20.0% 0.0% -20.0% -40.0% -60.0% -80.0% Wyoming Alaska North Dakota Texas Oklahoma Colorado Louisiana

20 Provincial and State Deficit/Surplus as a Share of Government Spending, % 40.0% Share of Government Spending 30.0% 20.0% 10.0% 0.0% -10.0% -20.0%

21 Average Annual Per Capita Surplus/ Deficit (US PPP$) US PPP$ 2,000 1,800 1,600 1,400 1,200 1,

22 Resource Revenues Important to Fiscal Position Resource Revenue as Percentage of Total Alberta Provincial Government Revenue: (Source: ADOE) Percent / / / / / / / / / / / / / / / / / /14

23 Average Per Capita Deficit without Natural Resource Revenues, (US PPP$) US PPP$ -1,000-1,500-2,000-2,500

Gross Public Debt to GDP Ratio, 2000 and 2012 80.

24 Gross Public Debt to GDP Ratio, 2000 and Percent of GDP

25 Nominal Net Debt in Alberta, 1993/94 to 2012/13 20,000 15,000 10,000 Nominal Cdn Dollars (In Millions) 5, ,000-10,000-15,000-20,000-25,000-30,000-35,000

26 Average Annual Government Expenditure to GDP Ratio, Percent of GDP

27 Revenue Composition, Percent of Total Revenues Personal Income Taxes Corporate Income Taxes General Sales Taxes

Sovereign Wealth Funds, 2012-13 50,000 Total Value of Sovereign Wealth Fund, 2012-13 (millions of US PPP$) 45,000

28 Sovereign Wealth Funds, ,000 Total Value of Sovereign Wealth Fund, (millions of US PPP$) 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Alaska New Mexico Alberta Wyoming Alabama Louisiana North Dakota

Per Capita Value of Sovereign Wealth Funds (US PPP$) 70,000 Per Capita Value in 2012-13 (US PPP$)

29 Per Capita Value of Sovereign Wealth Funds (US PPP$) 70,000 Per Capita Value in (US PPP$) 60,000 50,000 40,000 30,000 20,000 10,000 0 Alaska Wyoming New Mexico Alberta North Dakota Alabama Louisiana

30 Alberta s Fund Has Seen a Decline in Per Capita Value (Source: AHSTF Annual Report, )

31 Fiscal Performance Assessment Alberta s fiscal balance has not rebounded as strongly as the other energy-producing jurisdictions. When resource revenues are removed, Alberta moves from having the fourth highest average surplus (per capita) over the period to having the second largest average per capita deficit.

Spending In terms of the size of government of the energyproducing jurisdictions, Alberta maintains the fourth highest level of per capita spending but the third smallest government sector as a share

32 Spending In terms of the size of government of the energyproducing jurisdictions, Alberta maintains the fourth highest level of per capita spending but the third smallest government sector as a share of the economy. This apparently contradictory conclusion is rooted in the per capita income of the province compared to other jurisdictions. Alberta s high comparative income level allows for a smaller share of the economy to be spent in the government sector but translate into a fairly high level of per capita dollar spending.

Saving Alberta s Heritage Fund, which forms part of its assets, is unique in Canada and it is the third largest in terms of total value among the jurisdictions reviewed.

33 Saving Alberta s Heritage Fund, which forms part of its assets, is unique in Canada and it is the third largest in terms of total value among the jurisdictions reviewed. However, fund value per capita is onetwentieth the value of Alaska s, one third the value of Wyoming s, and less than half the value of New Mexico s. Also, at 24 percent, Alberta s fund has seen the slowest growth of the six funds in existence between and

Taxation Alberta has the highest reliance on corporate income taxes with 8.9 percent of its total revenues coming in the form of corporate income taxes.

34 Taxation Alberta has the highest reliance on corporate income taxes with 8.9 percent of its total revenues coming in the form of corporate income taxes. When Alberta is compared to other major energy producing jurisdictions in both Canada and the United States it reveals a greater reliance on both personal and corporate income taxes as a share of total revenue than these other jurisdictions. Given the distortionary nature and incentive effects of income taxes compared to consumption taxation, this tax structure does reduce Alberta s competitive advantage and economic efficiency. By reforming the tax system to rely more on consumption taxes and less on income taxes, Alberta would not only bring its mix of taxes more in line with competing energy producing provinces and states but would also improve the efficiency of its tax system.

35 Conclusion Alberta has done well given the blessings of its natural resource bounty. Concerns about productivity and sustainability of public finances Can do better.

The Rise of Western Canada: Focus Alberta

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