Janice Plumstead is senior economist at the Calgary based Canada West Foundation
The Alberta NDP government's big-spending budget shows the province is more than willing to use taxpayers' dollars to create jobs right away to kick the sputtering economy into gear. It is less than clear, however, whether its spending choices will advance longer term goals.
While there is plenty of short-term stimulus that will be welcome news for many families hit hard by plummeting oil prices, the document revealed by Premier Rachel Notley's government on Tuesday lacks the dual vision needed to take Alberta into the future.
The budget offers tantalizing hints that the province is building for change and strategically pursuing ways to diversify its economy. The government will build on Alberta industry strengths outside the oil-and-gas sector and invest in infrastructure projects to modernize Alberta's social and municipal structures.
What is lacking, however, is a strategy for today's battered energy industry.
Alberta has lost tens of thousands of jobs in the oil-and-gas sector this year. High-paying, highly skilled jobs have been eliminated as oil companies cut back on costs. The budget includes an incentive to create new jobs with a $5,000 grant for each net new job, projected to add 135,000 new positions overall. Even so, this job grant does not appear to have targets or outcomes associated with it. With the number of pink slips mounting, the province has revealed no clear strategy for its energy work force.
The budget forecasts a record $6.1-billion deficit, drains the contingency account and borrows money to cover operating deficits in the last years of the plan. There's no question the government is in a tough position, with a dramatic drop in revenue as oil prices collapsed this year. The short-term deficit is less important, however, than the plan to balance the books over the next three to five years.
What is worrying is that the budget leans heavily on the bullish assumption that the West Texas Intermediate oil price will recover to around $72/barrel over the five-year budget period, an optimistic estimate at a time when they languish just above $40.
If oil prices remain well below that $72 estimate for the next three to five years, those estimates fall apart. More money will need to be borrowed over a longer period of time to cover the gap in operating expenditures, creating a mountain of debt that will hobble young Albertans. Taxpayers here don't want to end up in the same situation as those in Ontario, who are each on the hook for $1,700 a year in interest payments just to service the debt – money spent with no new value.
The budget increases Alberta's capital spending to $34.5-billion on infrastructure. While this provides much needed short-term economic stimulus, it is unclear whether the province is paying enough attention to the type of infrastructure that will generate long-term jobs and growth.
Canada will join the colossal Pacific Rim trade agreement, the Trans-Pacific Partnership, with 11 partners (including the United States, where Alberta sends 90 per cent of its exports). To compete, it is vital that the West – and Alberta – moves quickly to seize opportunities. To compete, we need more and better ways to deliver our products to market. We need investments that improve trade-related infrastructure, including rail crossings, highway corridors, ring roads, and interchanges around intermodal hubs. Alberta appears to be investing little of that total capital spend in that type of infrastructure.
Yet falling short on trade infrastructure, the government is not providing as much support as it could to an initiative highlighted in the budget – diversification. Developing new markets and new products is key to the government's diversification agenda. The plan to get there is not obvious in this budget. Perhaps it is coming soon.
Alberta's NDP budget was not a business as usual kind of budget, but we knew that going in. The budget confirmed the government's election platform of looking after families and communities, but came up short on creating a visionary plan for the province's economic future.