Lennie Kaplan spent more than two decades in the public service of Alberta, focusing on government fiscal, economic, energy, and environmental policy.The Alberta Transition Council (ATC), in its recent transition plan for Alberta independence, has recommended that Alberta negotiate the province’s share of the legacy federal debt based on a formula that considers Albertans’ historical net fiscal contribution (NFC) to Canada.In this paper, I foreshadow the forthcoming ATC budget and fiscal plan by providing a preliminary analysis of the impact on Alberta government finances from the allocation of Alberta’s share of federal legacy debt under an adjusted historical NFC approach.I provide what I consider a best-case scenario for an independent Alberta’s finances and balance sheet, while adopting an interest rate risk premium of 100 basis points as a prudence factor over the next five fiscal years. However, I still believe the balance of risk trends more towards the downside and that Alberta finances will not be as robust as laid out in this best-case scenario. Nevertheless, I believe this is a useful exercise for establishing some lower bound benchmarks from which to evaluate the upcoming ATC budget and fiscal plan.We assume a narrower historical NFC approach that estimates Alberta’s NFC “overcontribution” at $130 billion and then allocate the remainder of Alberta’s share of legacy federal interest-bearing debt and other liabilities on more of a per capita basis, amounting to an additional estimated $108 billion. Thus, Alberta’s total share of legacy federal interest-bearing debt under an adjusted historical NFC approach totals $238 billion in 2028/29.I find that Alberta’s status quo interest-bearing debt (i.e. taxpayer- and self-supported debt) before independence will reach an estimated $126.1 billion as of March 31, 2029. Adding an estimated $238 billion of legacy interest-bearing federal debt under the adjusted historical NFC approach would see the Government of Alberta’s total interest-bearing debt reach $364.1 billion, or $68,871 per person, after independence..On a debt-to-GDP basis, prior to independence, the Government of Alberta’s status quo interest-bearing debt to GDP is estimated at 21.8% as of March 31, 2029. Adding its share of the federal debt, the Government of Alberta’s interest-bearing debt-to-GDP ratio would rise to an estimated 63% under an adjusted historical NFC approach by March 31, 2029.I estimate that Alberta’s status quo interest-bearing debt servicing costs will reach $3.479 billion as of March 31, 2029, or about $659 per person. Under an adjusted share of historical NFC approach, the $364.1 billion estimate of Alberta interest-bearing debt would have an estimated $12.261 billion (including a $2.380 billion interest risk premium) in debt servicing costs attached to it, or $2,319 per person.At these debt burden levels, an interest rate premium of around 100 basis points would make an independent Alberta’s fiscal consolidation efforts more severe. With a debt load of up to 63% of GDP initially as of March 31, 2029, if Alberta were to take on its adjusted historical NFC share of federal debt in fiscal year (FY) 2028/29, it could result in spending an estimated extra $2.380 billion, $450 per person, or 0.4% of GDP, on debt servicing payments alone that year.Including the full recovery of its share of federal revenues, the Government of Alberta could well be facing a $12.9 billion deficit in 2028/29. Over the first five years of independence, annual budget deficits would continue to remain significant, totalling a cumulative $39.5 billion over the period. A fiscal consolidation or adjustment of $12.9 billion, about 7.3% of program expenses, $2,433 per person or 2.2% of GDP, could be required in 2028/29 just to bring Alberta back into surplus.Net financial debt under my best-case scenario is estimated at $183.6 billion in 2028/29 and remains significant over the first five years of independence, reaching $192.5 billion in year five of independence. Net debt, which includes Alberta’s share of federal tangible capital assets and non-financial assets, under the best-case scenario, is estimated at $81.2 billion in 2028/29, falling to $74.1 billion by year five of independence..Note that these Alberta government deficit and debt figures are likely understated as they do not include such elements as elimination of the federal GST, elimination of provincial personal income taxes, reductions in corporate taxes, and retaining a growing portion of non-renewable resource revenues (NRR) “off-the-top” in an expanded Heritage Savings Trust Fund; all policies supported by many Alberta independence advocates.Clearly, developing a realistic plan for fiscal sustainability will have to be an independent Alberta government’s first priority to help reduce the size and risk of the legacy federal debt interest premium under independence. This will entail some difficult policy decisions by an independent Alberta government in the short-to medium-term.In conclusion, the Alberta independence movement, including the ATC, should not assume that by virtue of Alberta becoming independent, the provincial government can magically grow its way out of deficit and financial debt even under a more favourable adjusted historical NFC approach to the division of legacy federal debt.Lennie Kaplan spent more than two decades in the public service of Alberta, focusing on government fiscal, economic, energy, and environmental policy. He served as a senior manager in the Fiscal and Economic Policy Division of the Ministry of Treasury Board and Finance, where he worked on cross-ministry initiatives assessing the economic and fiscal impacts of federal climate and energy policies and assisted in developing meaningful options to reform federal–provincial fiscal arrangements. He later served as executive director to the MacKinnon Panel on Alberta’s Finances. He has continued to contribute to public policy discussions through research and commentary on public finance, energy policy, climate policy, and economic competitiveness.
