Budget pushes Alberta’s debt to $45B
Spending plan avoids cost-cutting errors made by previous governments, Ceci says
Alberta continues to drown in red ink, even as it embarks on a record capital spending spree.
Finance Minister Joe Ceci unveiled the province’s 2017-18 budget in the legislature Thursday and, true to his word, the government isn’t cutting spending in its $54.9-billion budget, even as energy revenues continue to lag.
Instead, it’s sinking $9.2 billion into health facilities, roads, maintenance, environmental initiatives and other projects under its massive construction, repair and upgrading plan.
To do that, it will borrow $6 billion for capital projects, and a further $6.4 billion to pay the day-to-day bills, bringing Alberta’s debt to $45 billion.
Ceci said Thursday the budget avoids the kinds of cuts to programs and services Albertans have seen in the past when oil prices falter.
“That’s the path that previous governments have taken, and we’re not going to repeat those same mistakes many are still paying for today,” he said.
Preserving front-line spending means nurses and teachers will keep working while the economy recovers, he said, and the thwack of capital spending will create thousands of jobs after employment evaporated during the most prolonged oil-price crash in Canadian history.
BANKING ON OIL
Alberta’s economic recovery hinges on the price of oil, even though the government talks about the importance of economic diversity and supports it in the budget through the likes of petrochemical investments and a new grant for distilleries.
It’s the energy sector that provides a glimmer of hope for the province’s co ers — Budget 2017 forecasts oil at US$55 per barrel and bitumen production is set to ramp up to 2.9 million barrels per day.
New pipelines, projected to come online by 2021, will also pump up revenue.
But the province continues to hedge its bets with a $500-million risk adjustment to cushion the blow if oil doesn’t quite recover as well as is hoped.
IN THE RED
Alberta is forecasting a $71.1-billion debt by the 2019-20 fiscal year, with debt-servicing costs almost tripling from 2015-16 to $2.3 billion.
The provincial debt to GDP ratio — long a point of fiscal pride for Alberta as the lowest in the nation — will increase to 19.5 per cent by 2019-20 from 6.1 per cent in 2015-16.
Wildrose finance critic Derek Fildebrandt doubts Budget 2017 will satisfy ratings agencies and avoid yet another credit downgrade.
Ceci argued his government does have a pathway out of debt, but he’s certainly playing the long game.
He expects a balanced budget by 2023-24 by bending the cost curve “in a prudent and thoughtful fashion.”
“You can get there more quickly, and we’ve seen that happen in the province before, (but) you leave infrastructure deficits,” he said.
That rankled Progressive Conservative interim leader Ric McIver, who said his administration “always had a plan to pay (debts) back and a schedule to pay them back on.”
WHITTLING DOWN THE GAP
Ceci’s strategy to climb out of the annual deficit hole is by taking it slow and steady.
First, he said, his government will keep spending increases below population plus inflation.
It will also rein in costs where it can, such as a continued government management salary freeze; the new doctor agreement that saves $500 million; trimming perks for the heads of agencies, boards and commissions; and eking out another $200 million in year-on-year savings.
He said those measures, combined with Alberta’s expected creaking economic recovery, will bring cash back to the co ers and make it possible to start paying down the deficit.
POLITICAL FALLOUT
With the next election earmarked for early 2019, the government will be banking on a return to those “happy days” sooner rather than later.
Ceci said Thursday he’s not really thinking about the election, but noted the economy is expected to grow by 2.6 per cent in 2017 and gain some footing over the next two years.
After that, some of the economic green shoots he’s so fond of speaking about will start to take hold.
But if the new pipelines don’t make headway, or oil prices fail to recover, voters will likely have a bad fiscal taste in their mouths, leaving the NDP in a tough spot.
Wildrose Leader Brian Jean doesn’t think the projected revenue numbers are realistic, calling the budget’s increase in commodity prices over the next three to four years “hopeful thinking.”
The NDP will also have to tread carefully in public sector contract negotiations this year.
But Ceci sticks by his government’s plan. “These are the choices we’ve made,” he said. “The choice we made as a government is to continue to support Albertans with the necessary programs and services they require.”