Big deficit, bigger debt
NDP to borrow billions hoping spending spree revives economy
Alberta will try to spend its way out of an economic downturn with a provincial budget that projects a $6.1-billion deficit, hikes sin taxes and calls for billions in new debt.
Plunging oil prices and declining corporate income tax revenues will take a $7.3-billion bite out of the provincial treasury.
But rather than scale back spending, the province’s $49.9-billion 2015-16 budget projects even more debt and the largest deficit the province has seen since 1987.
“It outlines an ambitious infrastructure plan that will fix roads, build schools and expand hospitals in communities right across this province, putting Albertans back to work and supporting economic growth,” Finance Minister Joe Ceci said Tuesday during an embargoed news conference before he delivered his budget speech in the legislature.
Alberta’s revenue crunch will be partly filled by new taxes already introduced by Premier Rachel Notley’s New Democrat government and the cigarette and alcohol tax hikes revealed in Tuesday’s budget.
And — for the first time in more than two decades — Alberta is set to borrow nearly $4 billion between 2016 and 2018 to pay for operational expenses such as government programs and services.
The last time the province borrowed for operations was in 199394.
“We believe Albertans want their services, their hospitals, their schools, their human services protected. To do that … it’s going to take some borrowing at the back half of this plan,” Ceci said. “We are going to be as rigorous with the operational spending as we can possibly be to bend the curve.”
Some new revenue measures will kick in immediately: As of 12:01 a.m. Wednesday, cigarette-carton taxes will jump by $5 to $50, while the liquor markup will see a fiveper-cent hike — tacking on an extra two cents per bottle of beer and about 18 cents per 750 mL bottle of wine or spirits.
Taxes on loose tobacco and cigars will also increase.
Insurance premium tax rates — paid by insurers — will rise for life, accident and sickness policies by one percentage point, to three per cent, beginning next April. Tax rates for other types of insurance will increase one per cent to four per cent.
Together with tax increases for the wealthy and corporate income taxes passed by the NDP government this summer, Alberta will bring in an additional $1.5 billion this year and $4.6 billion over the next two years.
The drastic drop in revenues will also be partly offset by emptying the $3.3-billion Contingency Fund this year. It will remain depleted until $400 million is deposited in 2019-20 — when the province projects it will post a $1-billion surplus.
Wildrose Leader Brian Jean slammed the New Democrats for what he called a “fantasy” projection that the government’s books would be back in black by 2019.
“Every Albertan will be poorer because of this budget and we know more taxes are just on the horizon, yet this premier has taken no meaningful action to restrain the growth of government,” Jean said.
Both he and Wildrose finance critic Derek Fildebrandt blasted the government for borrowing money for basic operations starting next year.
Fildebrandt said he has repeatedly warned that “once politicians start borrowing money with abandon that it would never stop.”
“We’re seeing that today,” Fildebrandt said. “We’re seeing the already very, very weak financial rules around budgets being weakened so that the government can not only borrow for capital, but even borrow for the groceries. It’s most concerning but not unexpected.”
On top of operational debt, Alberta will borrow more than $5.9 billion this year to finance infrastructure projects such as schools, roads and hospitals for an accumulated total of $18.9 billion.
That figure is set to rise to $36.6 billion by 2018.
Overall, Alberta is set to pump $34 billion into capital projects over the next five years.
Liberal interim leader David Swann said he was looking for a more proactive budget to get off the oil and gas revenue rollercoaster.
He called the NDP budget a “mixed bag.”
“There’s no question they’ve inherited a mess,” said Swann, but he said he is sorry to not see more money funnelled into new technologies, energy efficiencies and the elimination of the small business tax.
While he said borrowing to build infrastructure is a smart move, he noted the province offered no play for paying it back.
“Surely, if we’re going to borrow this kind of money, we have to have a plan to repay and it’s not clear we have that,” Swann said.
Paige MacPherson, Alberta director of the Canadian Taxpayers Federation, said the government must rein in spending and stop blaming low oil prices for deficit budgeting.
“It’s unfortunate that fiscal balance is not a priority for this government,” MacPherson said. “I do think we have to brace ourselves for the spring budget for sure because of all the spending that’s been ramped up.