Alberta on course for $96B in debt
Balanced Budget Forecast in 2023, But relies on pipelines Being Built
Alberta faces five more years of deficits and billions of dollars in mounting debt before it sees a balance sheet back in the black.
The 2018 provincial budget, tabled in the legislature Thursday afternoon by Finance Minister Joe Ceci, tells the story of an economy still recovering from a lingering oil price shock and struggling with market access problems for its crude.
The spending plan forecasts debt ballooning to $96 billion by 2023 from $54 billion this year — a level of debt that is “what it will take” to make sure Albertans don’t go without the important programs and services they rely on, Ceci said.
“I’m focusing on balancing first, thank you, and once we get to balance we’ll continue to work on plans to address our debt,” Ceci said, when asked by reporters what people might think of the expanding red ink.
Alberta’s deficit is expected to total $8.8 billion in the coming year. Its borrowing will include $3.8 billion for capital projects and $7 billion for operating costs.
Unemployment remains above pre-recession levels, although officials point to increasing full-time, private sector jobs as an encouraging sign for things to come. The province’s economy is also set to grow by around 2.7 per cent this year.
THE PATH TO BALANCE
In previous years, Ceci was criticized over the lack of a detailed plan to get back to a balanced budget. This year, that plan takes up an entire chapter.
The minister said he’s following through on a promise to demonstrate how the budget will balance, not just when. And no, he said, it’s nothing to do with placating the credit rating agencies he expects to meet with soon.
The NDP’s three-pronged strategy to balance is contained amid pages of the government’s explanation about how it dealt with the recession.
The first step is reducing Alberta’s reliance on resource revenues, a dependence that has long plagued the province.
In 2016, when the price of oil collapsed, the province lost 70 per cent of its non-renewable revenues — a $6.1-billion hit in one year. The government says that won’t happen again.
It’s trying to scale back the degree to which the budget relies on the resource sector, aiming for 16 per cent by 2023, compared with an average of 23 per cent over the past 20 years.
Despite that goal, the government is also counting on the completion of the Trans Mountain pipeline expansion and the Enbridge Line 3 expansion.
There is no Plan B. Officials said their best information is the projects will get done, so that’s what they’re relying on.
As much as Ceci insisted Trans Mountain will be built, he also said balancing the books isn’t reliant on pipelines alone.
“Our path to balance is predicated on a number of things, including controlling costs of government going forward, keeping expenditures below population plus inflation,” he said. “That in itself is no small feat, and if we’re able to do that — and that’s our target, we can show you where we will do that — we will get to balance.”
DIVERSIFICATION
The second pillar of the balance plan is economic diversification, although the government has already announced its strategies on that file.
Diversification in the energy industry will see $1 billion over eight years for partial upgrading, $500 million in royalty credits for the second phase of the petrochemicals diversification program and $500 million for a petrochemical feedstock infrastructure program.
The government is extending the Alberta investor and capital investment tax credits to the tune of $60 million, creating a new, $20-million-per-year interactive digital media tax credit, and funding 3,000 new post-secondary technology spaces over the next five years for industries such as life sciences and clean technology.
Ceci promised more programs in 2019.
“We’re working strongly to move us out of those volatile revenue swings that come with oil and gas sector products,” he said.
The final step on the pathway to balance is stable, controlled government spending.
To do that, Ceci is focusing on public sector compensation (through collective bargaining and freezing non-union salaries), keeping health spending under control, finding efficiencies and curtailing discretionary spending.
FEDERAL CARBON TAX
Alberta also is eyeing the federal portion of the carbon tax to help plug the deficit gap in the next five years.
Cash from Alberta’s carbon levy is directed toward environmental programs and efficiency projects. Once the federal government imposes its own carbon tax in 2021, boosting the total price of carbon to $40 per tonne, the extra funds will be directed into Alberta’s general revenue coffers.
The provincial carbon tax rebate program won’t go any higher than it is now. In fact, payouts are expected to fall over the next three years as economic growth leads to higher incomes and fewer people qualifying for the full rebate.
For another year running, the provincial budget avoids hiking fees and so-called sin taxes.
Ceci called Thursday’s budget “a roadmap to a recovery built to last.”
“Alberta’s best days are ahead of us, not behind us,” he said. “We’re coming out of the recession strong and have placed our province on a responsible path to a balanced budget.”
REACTION MIXED
The reaction from industry groups and stakeholders was decidedly mixed.
In education, funding enrolment growth got the thumbs up, but school groups were concerned about the decline in infrastructure spending because of packed schools.
In health, there was some disappointment about the lack of creativity to try different approaches as the government curtails spending.
The official Opposition came out guns blazing, with United Conservative Party Leader Jason Kenney calling the budget “reckless” and saying Alberta would be digging out of the fiscal hole for years to come.