Alberta expects $22B of debt within 3 years
$1.1-billion operating surplus forecast
Calgary • It was a budget that marked a clear break from the free-and-clear Ralph Klein era.
Thursday, the Alberta government tabled a spending plan that will see the province’s total capital debt liability balloon to $21.6-billion within three years.
“We will not sit idle because of some ideology against debt at all costs — because there is always a cost,” said Finance Minister Doug Horner in his budget speech, his strongest pro-debt paean to date.
After a year of doom-andgloom forecasts predicting sinking oil revenues, Mr. Horner said Alberta was “turning the corner.” He is expecting a $1.1-billion consolidated operating surplus, thanks to unexpectedly high royalty revenues, a lower Canadian dollar and increased federal transfers.
The budget was “fully balanced,” he added.
A look at the government’s figures shows it separates oper-
We will not sit idle because of some ideology against debt
ating from capital spending. It also excludes about $6-billion in fresh debt, most of which will be spent on infrastructure, such as roads, clinics and schools.
There’s another $4.9-billion in new direct borrowing for capital, $200-million for publicprivate partnership financing and $905-million to re-finance maturing debt.
That brings Alberta’s total liability for capital projects to $13.6-billion by the end of fiscal 2014-15. The following year, that figure is expected to increase to $21.6-billion, more than was forecast last year — and a big change from the days of Ralph Klein, who declared the province debt-free in 2005.
Mr. Horner said the government would put a set amount of cash aside each year to repay the debt; he also said debt would be capped. But he added there was no time frame to stop borrowing. The government would continue to issue bonds for “as long as it continues to make financial sense.”
Opposition leader Danielle Smith rejected the notion this was a balanced budget.
“Nonsense, utter nonsense,” said the Wildrose party leader. “I cannot believe [Premier Alison Redford] just won’t be straight with Albertans.”
Record revenues gave her an opportunity to balance the budget, but she decided to “double down on debt.”
Debt-spending is a major departure for Ms. Redford’s Progressive Conservative government. With borrowing costs remaining low and healthy investment revenues on its savings, it embraced financing last year amid tanking bitumen royalties.
Non-renewable resources account for about 20% of Alberta’s budget, making the province vulnerable to the volatile oil market. When bitumen royalties dropped, so did the government’s financial prospects.
Those revenues appear to have improved this year, sparing Ms. Redford the cataclysmic outcome forecast this time last year when shortfalls were expected to hit $6-billion.
However, the burgeoning debt is not likely to endear the premier to critics. A recent poll showed her approval rating hovering at 20% — making her one of the least popular leaders in Canada. Her party is also stagnating, with a 25% approval rating, well behind Wildrose’s 38%.
Much of the discontent can be traced to the travel expense scandals. While her government was chopping education and public-sector spending, Ms. Redford spent $45,000 to attend Nelson Mandela’s funeral in South Africa in December, although she was offered flights and accommodation by Ottawa. Then there were the flights on government planes for her young daughter’s friends. Tuesday, Ms. Redford agreed to repay $3,100 for these.
Meanwhile, her government is banking on continued growth and strong resource revenues to stave off any unpopularity. This year, it expects West Texas Intermediate to average US$95.22 a barrel and Western Canadian Select US$77.18 a barrel, bringing in royalties of $5.6-billion and $2-billion respectively.
The government has also reined in operational spending, to some extent. It says dayto-day expenses grew by only 3.7%, less than inflation and population growth.
Critics appeared bemused by it all, with Jack Mintz, an economist and director of the University of Calgary School of Public Policy, calling Mr. Horner’s presentation “very confusing.” He also questioned whether the budget was actually balanced. “They may say it’s balanced, but it’s not balancing in the sense that they have to borrow more money than what they’re taking in to finance programs and [capital] expenditures. I like calling that a cash deficit,” he said.
“This puts us on track for more debt and probably tax hikes somewhere down the road if we don’t get it under control,” added Derek Fildebrandt, Alberta director of the Canadian Taxpayers’ Federation. He projected an actual deficit of $3.9 billion, despite the projected record revenues.
Ms. Smith said the government is not putting enough money aside to pay off these debts in the future. “We don’t know what’s going to happen with interest rates,” she said. “With global instability, the level of debt the U.S. is carrying, you can’t really bank on what interest rates are going to be five years or 10 years from now.”