LOWER DEFICIT EXPECTED IN NDP BUDGET BUT ...
Don’t expect radical improvement in figure as government vows to keep $9.1B spending
Thursday’s budget will show a drop in Alberta’s current whopping deficit, pegged at $9.1 billion.
Premier Rachel Notley said as much in an interview two weeks ago. The NDP has been sending signals of improved finances for more than a year.
But it would be unwise to expect a radical improvement in that alarming deficit figure.
Cutting the deficit in half, for example, would be shocking from a government that vows to maintain spending on key programs.
To the extent the deficit does drop, it will be accomplished mainly by pulling back on capital works.
Capital spending is $9.1 billion in this budget year, exactly the same as the deficit, by a curious coincidence.
Obviously, the government could balance the budget immediately by ceasing construction and maintenance of every single project, from rural roads to the Calgary cancer hospital.
Not a great idea. Notley vows to continue the big projects, including the hospital, Green Line and Edmonton light rapid transit, without chipping away at their size and function.
Since the NDP was elected, stimulus spending on projects large and small has been running at the highest levels ever.
The NDP borrowed to stimulate the economy on the advice of David Dodge, former governor of the Bank of Canada.
Now, “what you’re going to see is a gradual return to more historic levels of capital spending,” says Cheryl Oates, Notley’s communications chief.
Capital spending was $7.2 billion in 2007-08, the year oil reached its highest level ever, at US$147 per barrel. That year also ended with the great financial crash.
In 2009-10, with times still tough, the former PC government spent $6.8 billion on capital works.
The economy was “firing on all cylinders” in 2013-14, when capital spending was $5.2 billion.
So, “historic levels” of spending for capital works have actually been quite high over the past decade.
Dropping back to that traditional range only deals with a fraction of the deficit problem. It’s certainly no path to balancing the budget by 2022-23, as Finance Minister Joe Ceci promises.
Ceci has already said the budget can’t be balanced in 2022-23 without construction of the Trans Mountain expansion and the Enbridge Line 3 replacement.
Future revenue spun off from those projects will be factored into revenue predictions, as well as Ceci’s plan to balance the budget by 2023.
The budget does not offer an alternative if there’s no pipeline. That would be to suggest defeat at the hands of B.C. Premier John Horgan.
“Balance would still be achieved, but it might take a little longer,” says Oates.
Ceci made his comments about including projections for pipeline revenue two days before the budget was to come down.
This is unusual — almost a self-propelled budget leak, since it could rattle Alberta’s debt watchers and even affect share values (please see Chris Varcoe’s column Thursday).
But the New Democrats perhaps dropped that early for a strategic reason: They don’t want the non-existent revenue to be the big story on budget day.
United Conservative Party Leader Jason Kenney said Wednesday: “I expect there will be some reduction in the projected budget figure ...
“The finance minister has already admitted that that’s based on hopeful projections as opposed to a fiscal plan. Basing it on a pipeline that is bogged down in delays right now is not a credible fiscal plan.
“Their credibility will be based on whether they’re prepared to identify meaningful spending restraint.”
The NDP won’t cut very much spending, if any, from health care, education or advanced education. They’ll stick to the core plan of resisting big cuts in hopes that higher revenues are on the way.
One NDP official called the budget “boring.”
The opposition is sure to find it infuriating.