Albertans offered two paths to a balanced budget
Alberta is a fiscal anomaly.
When Ontario’s new government released its inaugural budget last week, it was typical of the direction many provinces in Canada are taking: plotting a path to a balanced budget by restraining long-term spending on health, education and children.
Tax cuts are rare these days in most provinces. Rather, premiers offer up boutique spending programs — think free dental care for low-income seniors, announced by Ontario last week — while trying to wrestle their deficits to the ground.
As Albertans head to the polling booths on Tuesday, the job market is rocky, their expectations for growth are abysmal and the fiscal solutions on offer seem to be based on revenge or uncertainty.
Like most provincial governments these days in Canada, both NDP Leader Rachel Notley and United Conservative Party Leader Jason Kenney are promising a balanced budget in the next few years: Notley targets 2023-24, Kenney a year earlier.
But their preferred routes of getting there contrast mightily. Under Notley, spending would rise, especially for child care and prescription drug coverage. She counts on a healthy increase in oil revenue to make ends meet. But her plan could be undermined if that market, and Alberta’s ability to capitalize on it, doesn’t recover quickly
steep cut in corporate taxes and a freeze in government spending are central to Kenney’s plan for balance. He bucks the trend among provinces with this package, but he is also raising questions about how much a tax cut could actually help the Alberta economy. The jury is out on whether tax cuts spur growth, with many an expert quite skeptical about corporations’ willingness to use their windfalls for expansion.
Other provinces aren’t banking on that kind of approach, for now. Manitoba is also cutting taxes, but most others are relying on tax revenue to balance the books.
And then there’s Alberta’s perennial dependence on oil.
Kenney, like Notley, is also counting on a revival of the industry. He has set his sights on British Columbia, threatening to cut off the oil supply to his neighbours unless they ease the way of a new pipeline to the Pacific coast.
Acting on that threat, however, might be cutting off his nose to spite his face.
Unlike Alberta, British Columbia’s economy is gearing up for a great year, propelled by a massive investment in liquified natural gas. Alberta stands to be a key supplier for that project, but that would be difficult if Kenney were to start a trade war.
All told, despite the hyperbole coming from politicians engaged in electioneering, the provinces are not in terrible fiscal shape.
Yes, their debt burdens have been on a steep incline. Taken as a whole, provincial debt is now on par with that of the federal government for probably the first time ever. Robert Kavcic, who handles provincial economics at BMO Capital Markets, figures the combined provincial debt as a proportion of provincial GDP will be 30.4 per cent for 2019-20. At the federal level, the debt ratio is expected to be 30.7 per cent this year.
Provincial governments have recently come to a bit of a consensus, however, that they need to balance their books. So, during this spring’s budget season, which is now drawing to a close, Canadians have seen a string of commitments across the country to either stick with or work toward surplus.
(At the federal level, the Liberal government is less concerned, partly because it has a much bigger fiscal capacity to handle debt and deficit than any province. The federal Conservatives disagree vehemently, however, and the issue will be central in the upcoming election.)
There’s a cost that we have only begun to reckon with. Many provinces are looking at their big spending centres — health and education — and curtailing their increases to rates that don’t meet the demand from aging and growing populations. In Ontario, for instance, the Fiscal Accountability Office says health spending needs to rise by well over 4 per cent a year just to maintain the status quo in the level of service. Last week’s budget sets health-care increases at less than half that pace. Either huge efficiencies are found, or something has to give.
Plus, the provinces’ recent penchant for being deficit-free will undoubtedly be tested, and soon. While few expect a recession, many economists see a downturn on the horizon, which would throw all provinces’ expectations for revenue and required spending up in the air.
There, too, Alberta is an anomaly. Even though its economy is sputtering and deficits have surged in the past few years, the province’s overall debt burden is the lowest in the country. Its taxes are still low.
And its GDP-per-capita, a key measure for wealth, is among the highest in Canada.
Alberta is in better shape than anyone to plot a way through what could be coming at us.
Even though its economy is sputtering and deficits have surged in the past few years, Alberta’s overall debt burden is the lowest in the country