Alberta Tops North American Fiscal Performance Index:

Klein government outperforms all provinces and U.S. states in biennial rating

Contact:

Michael Walker, Executive Director
The Fraser Institute, (604) 714-4545 Email: michaelw@fraserinstitute.ca

Release Date: 6 March 1997

VANCOUVER, BC>>> The Fraser Institute released today its biennial rating of the spending and taxation policies of provincial and U.S. state governments. The Fiscal Performance Index measures the performance of 9 Canadian provinces and 46 U.S. states, using variables that reflect change in spending, change in government revenue, and change in the structure of taxation.

Alberta was the only jurisdiction to receive a top grade.

Of the "established" provinces (those whose current governments were in power before fiscal year 1993-94), Alberta received an A on the strength of large spending cuts and no tax increases, and Saskatchewan received a C. Manitoba, British Columbia, Newfoundland, and New Brunswick received F's.

Of the "midterm" provinces (those whose current governments came into power after fiscal year 1993-94), Ontario received a C, and Quebec and Nova Scotia F's. Prince Edward Island could not be ranked because of its very recent election.

The fiscal rankings are part of the Fraser Institute's on-going program of assessing the tax and expenditure behaviour of governments in Canada. The method of constructing the index is taken from a U.S. study, produced by the Cato Institute, of the fiscal performance of 46 American governors.

"Fiscal conservatism is on the rise in the U.S., and the growth of government there has all but stopped," said Joel Emes, Fraser Institute research economist. "In 1995, 21 states, led by New York, New Jersey, Arizona, Connecticut, and Pennsylvania, cut taxes. Last year, the tax cuts continued with 27 governors recommending lower taxes in their budgets, and no state has recently enacted a major tax increase."

Canada is undergoing a similar change. All provincial governments have embraced the wisdom of balanced budgets, and are either working towards fiscal balance or are beginning to pay off accumulated debt. While Ontario is still the only province that has enacted a significant tax cut recently, the steady advance in Tax Freedom Day from the 1960s levelled off or reversed in most provinces in 1996. In four provinces, the average family had to work fewer days in 1996 than in 1995 to pay off their all-government tax bill. Three provinces had the same Tax Freedom Days in 1995 and 1996, and three provinces, along with Canada, had small advances in their Tax Freedom Days.

METHODOLOGY

Twelve spending and revenue variables are used to construct the indices. One sub-index examines the extent to which governments have controlled spending during their terms of office. The other sub-index looks at how taxes and revenues have changed over the same period. The Canada/U.S. index presents the overall measure of fiscal performance. Since 50 of the 51 state governments have legislated balanced budget requirements, provincial deficits are added to provincial revenues to force budget balance on the provinces, and make provincial and state revenues comparable.

Spending Sub-Index for "established" governments:

1993/94 total government spending per $1,000 of personal income
Average annual change in real total government spending per family of four, from election through 1993/94
Average annual change in total government spending per $1,000 of personal income, from election through 1993/94
Average annual real change in total government spending per family of four, from election through 1996/97
Average annual change in total provincial spending per $1,000 of personal income, 1993/94 through 1995/96

Tax and Revenue Sub-Index for "established" governments:

Average annual change in real own-source revenue per family of four, from election through 1993/94
Average annual change in own-source revenue per $1,000 of personal income, from election through 1993/94
Average annual change in taxation as a percent of the prior year's budget, from election through 1996/97
Percentage point change in combined top income tax rate (personal and corporate), from election through 1996
1996 total combined top income tax rate (personal and corporate)
Percentage point change in sales tax, from election through 1996
Change in gas tax, cents per litre, from election through 1996

The indices for the "midterm" governments are constructed in the same way as those for the "established" ones, except that only nine variables are used, due to data limitations in the U.S.

Spending Sub-Index for "midterm" governments:
Average annual real change in total government spending per family of four, from election through 1996/97
Average annual change in total government spending per $1,000 of personal income, from election through 1995/96
1993/94 total government spending per $1,000 of personal income

Tax and Revenue Sub-Index for "midterm" governments:

Average annual change in taxation as a percent of the prior year's budget, from election through 1996/97)
Average annual change in real total government revenue per family of four, from election through 1996/97)
Average annual change in total revenue per $1,000 of personal income, from election through 1995/96)
Percentage point change in combined top income tax rate (personal and corporate), from election through 1996
1996 combined top income tax rate (personal and corporate)
Change in gas tax, cents per litre, from election through 1996

Each variable is standardized such that the lowest score is zero and the highest score is 100. The variables are then assigned a weight and summed across their respective categories. All variables are given a weight of one except for "1996 combined top income tax rate (personal and corporate)" and "Change in gas tax, cents per litre, from election through 1996", which have a weight of one-half. This is done to maintain consistency with the U.S. study. The index showing Canada/U.S. fiscal performance is obtained by averaging the "spending" and "tax and revenue" sub-indices.

Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.

For further information contact:

Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca

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