Paid in Full, Again? Using Alberta's Windfall Revenues to Eliminate Provincial Debt

Don’t Spend Away the Windfall: Better Options for Alberta’s Unexpected Revenues

“Our debt is dead,” declared a front-page Calgary Herald headline on July 13, 2004 (Hudes, 2021). The paper was covering a famous event in Alberta’s fiscal history: Premier Ralph Klein holding a “Paid in Full” sign high above his head, marking the end of a 10-year plan to eliminate provincial debt as detailed in Budget 1994. To be clear, Alberta was not literally debt free, but by March 31, 2005, it was projected that the province’s Debt Retirement Account would have sufficient assets ($3.5 billion) to fully repay remaining debt as it came due over the coming years (Alberta, 2005). For many, that was close enough. And accounting details aside, Alberta’s fiscal turnaround-thanks largely to high resource revenues-was indisputably substantial. Net provincial debt (total debt minus financial assets) declined from nearly 15 percent of GDP in 1994 to less than -5 percent 10 years later (when our financial assets exceeded our debt (Finances of the Nation, 2022)-a 20 percentage-point improvement.

Today, Alberta again has the potential to be debt free within a similar time span. In 2022, resource revenues blew past their previous record highs, which, combined with several years of restrained program spending growth, generated significant fiscal surpluses. While strong cases can be made for using such surpluses to achieve other objectives, such as saving more within the province’s Heritage Fund, the current situation may be one where debt repayments are a uniquely attractive option. For the first time in well over a decade, government borrowing rates exceed the expected return on investment savings. And given mounting global economic and geopolitical risks, the financial gain from lowering debt-in the form of lower interest payments-provides welcome certainty where financial investments do not.

This essay discusses some of the key considerations in evaluating debt repayment as an option. It also illustrates a set of fiscal projections for Alberta that suggests eliminating provincial debt is achievable within roughly one decade. Whether one favours this option or not, it should be a critical part of Alberta’s fiscal policy conversation.

Trevor Tombe
Professor of Economics