Alberta tops Institute's Budget Performance Index while PEI falls to last place
Contact:
Jason Clemens, Director of Fiscal Studies
The Fraser Institute (604) 714-4544,
Email jasonc@fraserinstitute.ca
Joel Emes, Senior Research Economist
The Fraser Institute, (604) 714-4546,
Email joele@fraserinstitute.ca
For Release: 9 November 2001
VANCOUVER, BC— According to a new study released today by The Fraser Institute, Alberta tops all provinces and the federal government for overall fiscal performance. Alberta ranks first with a score of 71.9 out of a possible 100 on the Institute's Budget Performance Index 2001, contained in the November 2001 edition of the Institute's monthly magazine Fraser Forum.
The Budget Performance Index, begun in 1995, measures the recent fiscal conduct of the provinces and the federal government with 17 variables in 3 sub-indices: Spending, Tax Rates and Revenue, and Debt and Deficits. "This Index provides Canadians with information about how their governments tax, spend, and manage debt relative to other Canadian jurisdictions," says Jason Clemens, director of fiscal studies at the Fraser Institute and co-author of the study.
Overall performance
Three provinces experienced rather pronounced shifts in their overall ranking (Table 1). Newfoundland and Labrador improved its ranking, moving from tenth position in the 2000 rankings to fourth position this year, based largely on improvements in its Spending score, but also because of improvements in its Tax Rates and Revenue score.
The rankings for Prince Edward Island and Manitoba, on the other hand, declined significantly, dropping from sixth to eleventh, and from fourth to eighth positions, respectively. In addition to PEI, Nova Scotia, Manitoba, Quebec, and British Columbia also failed to obtain overall passing scores on the Index.
Spending
The first component of the Budget Performance Index is the Spending sub-index. The federal government received a perfect score of 100.0 for its performance in government spending.
The next-highest ranked jurisdiction, Ontario, only received a score of 63.6, indicating the strength of the federal government's performance. "The federal government did well in this category largely because of cuts made to provincial transfers, decreases in defence and security-related spending, and reductions in the Employment Insurance program," says Clemens.
The rankings for three provinces changed significantly: Prince Edward Island, Newfoundland and Labrador, and Alberta. Newfoundland and Labrador increased its ranking from tenth in 2000 to sixth this year with improvements in all four of the government spending indicators. Alberta and Prince Edward Island experienced declines in their rankings, dropping from fourth to eighth and from sixth to eleventh, respectively.
Among the provinces, Quebec maintains the largest provincial government (consolidated to include both provincial and local spending) at 25.2 percent of GDP. Quebec is followed closely by Saskatchewan (25.1 percent), Manitoba (25.0 percent), and British Columbia (24.4 percent) in terms of having large provincial governments. Alberta had the smallest government, with spending by government representing only 19.4 percent of GDP, a full 5.8 percentage points less than in Quebec. Ontario, at 21.2 percent of GDP, had the second smallest government.
Tax Rates and Revenues
Alberta achieved the top score on the Tax Rates and Revenues sub-index, garnering a score of 82.2 out of a possible 100.0. Ontario followed in second place with a score of 64.3.
As was the case in 2000, the federal government received the lowest score (29.2) and ranked last among all jurisdictions for its performance in Tax Rates and Revenues.
Of the eleven jurisdictions assessed, six maintained their rank from the previous year. Only Saskatchewan, British Columbia, New Brunswick, Newfoundland and Labrador, and Manitoba changed ranks, and these were relatively small changes, not nearly as dramatic as some of the movements noticed in other sub-indices. Saskatchewan, British Columbia, and Newfoundland and Labrador all moved up, while New Brunswick and Manitoba moved down.
"Not surprisingly, provinces with large governments (as measured by government spending), also perform relatively poorly when they are ranked according to the percentage of the economy or personal income they collect in tax. Quebec, Saskatchewan, and British Columbia lead the nation in terms of the portion of the economy extracted in taxes," notes Clemens.
Debt and Deficits
The final sub-index of the Budget Performance Index provides a broad overview of the extent a jurisdiction uses deficits to finance current consumption and the relative burden of accumulated debt.
Alberta received a perfect score of 100.0 on this sub-index. "Over the last 5 years, Alberta has aggressively paid down its provincial debt to the point where it now has no net debt and is relatively close to eliminating its overall gross debt," says Clemens.
Saskatchewan, once on the threshold of bankruptcy, received the second highest score of 81.8, and ranked second overall. Saskatchewan's per capita debt has fallen by $1,386, and debt-to-GDP has fallen by 22.8 percentage points.
British Columbia dropped from eighth place in 2000 to last place in 2001 in terms of debt and deficits. In fact, it had the lowest score for each of the indicators measured in this section, resulting in a score of 0.0. It now maintains the highest per capita deficit, and over the last 5 years has experienced the largest per capita increase in debt of any province.
Two other jurisdictions experienced rather pronounced changes in ranking: Prince Edward Island and the federal government. Prince Edward Island dropped from fourth place in 2000 to eighth place in 2001. While PEI's per capita debt and debt-to-GDP decreased from 1995/96 to 1999/00, its budget has been in deficit for the past five years.
The federal government improved its ranking from ninth place last year to third place this year. The federal government switched from an average deficit in the 2000 Budget Performance Index to an average surplus in this years' index and went from a per capita increase to a decrease in net debt.
"In a world of diminishing borders and increasing international competitiveness, the fiscal performance of national and sub-national governments is becoming increasingly important as a catalyst for economic well-being," concludes Clemens.
Methodology
The period of analysis for most variables is fiscal year 1996/97 through fiscal year 2000/01. The exceptions are tax rates which are measured in calendar years 1996 and 2001 and debt per capita and as a percent of GDP which are measured from fiscal year 1995/96 through fiscal year 1999/00. The study uses consolidated provincial-local data and all references to an individual province include both provincial and local government activities.
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver with offices in Calgary and Toronto.