Canada's wealthiest province cuts deep as Alberta embraces austerity

Edmonton — The Globe and Mail

Alberta Premier Alison Redford looks to the gallery before Minister of Finance Doug Horner presents the 2013 budget at the Alberta Legislature in Edmonton, Alberta on Thursday March 7, 2013. (JASON FRANSON/THE CANADIAN PRESS)

Alberta Premier Alison Redford has rolled out an austerity budget that halts spending growth, abandons many of her election promises and will return the province to a level of debt not seen for two decades.

The budget woes for Canada’s wealthiest province underscore its reliance on the energy sector. Just a year ago, Alberta was forecasting a bitumen-driven windfall that would fill its coffers. Now, in the budget unveiled Thursday, Alberta is slashing education and social-program funding, warning civil servants they won’t get raises and turning to borrowing.

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It sets the stage for the federal budget, expected within weeks, and signals how deeply a sagging price for Western oil affects governments’ bottom lines. The province now says it can’t increase spending, even as the population soars. “And that’s going to be painful for a lot of folks,” Finance Minister Doug Horner acknowledged.

Alberta expects to take in $7.2-billion in resource revenue in the coming year, 46 per cent lower than once projected. It will, under a new law, save 5 per cent of that. All told, Ms. Redford will run a $1.975-billion deficit, despite earlier promises of a surplus.

Ms. Redford steered clear of new taxes or any tax hikes, but will continue to drain down her province’s rainy-day fund and borrow a total of $11.6-billion over three years to build schools, roads and hospitals for the fast-growing province.

Thursday’s budget was Alberta’s sixth deficit in a row, but the province is tightening its belt. After it averaged more than a 7-per-cent increase in spending per year over the last decade, this budget’s growth is 0 per cent, with Mr. Horner calling it a “reset” of the government’s finances. “I would say that we spent for growth in the past. Did we spend too much? Probably. That’s why we’re doing this reset,” Mr. Horner said.

The only ministry to get a major increase was health, which got 3 per cent more – less than it was expecting – and now eats up 45 per cent of the budget. Health Minister Fred Horne warned again of the impacts of skyrocketing health costs. “This is now an issue in Alberta. My question is what does that mean for the rest of the country?” he said.

The province changed the way it presents its budget, separating capital spending, saving and operational spending. Some in the business community said it was a prudent move, although the new format obscures the true deficit number. Derek Fildebrandt of the Canadian Taxpayers Federation accused the Tories of “cooking the books beyond all recognition.”

Alberta now expects to run an “operational deficit” of $451-million in the coming year – one of Ms. Redford’s many broken promises included in the budget – but bureaucrats said the formal deficit is considered to be $1.975-billion. Meanwhile, the “cash-adjusted” deficit figure – or how short the province is this year after all its transfers to Crown agencies – is $6.3-billion for this year. That will be covered by draining its rainy day Contingency Fund by $2-billion, leaving just $691-million in it by next year, while borrowing for infrastructure.

Ms. Redford’s infrastructure building boom will send the province back into debt at a level not seen since before Ralph Klein. Ms. Redford has dismissed debt questions as “parochial,” with Mr. Horner saying it makes sense to borrow at cheap interest rates.

Alberta will borrow the $11.6-billion while increasing the value of its two savings funds by just $3.1-billion. When adding in the value of infrastructure – with Mr. Horner insisting he could sell a hospital if the province needed to – and other factors, the province’s total net assets are projected to increase by a modest $1.2-billion over the next three years, or a total of 2.8 per cent.

A new law will ensure debt-payment costs never exceed 3 per cent of the operating budget, with Mr. Horner saying the province’s diminished savings funds earn a higher rate of return than he’ll pay in borrowing. But Opposition Leader Danielle Smith said the budget was a return to the days of former premier Don Getty, who ran up much of the debt Mr. Klein paid off after becoming premier in 1992.

“This premier is plunging this province back into debt – significant debt. She’s been calling this a ‘once in a generation budget’ and she’s right about that. It took a generation to pay off the Getty debt [and] it is going to take a generation to pay off the Redford debt as well,” Ms. Smith said.

Liberal Leader Raj Sherman called it a “bankrupt budget,” reiterating his call for tax hikes to fill the revenue gap. “The irony is the economy in Alberta is very good,” he said. “Why can’t the Redford Conservative government balance the books?”

NDP Leader Brian Mason said Ms. Redford “misled Albertans” by abandoning her election spending promises instead of raising tax rates. “What we’re seeing I think is a shrinking budget for a growing province, and that’s going to create all sorts of problems,” he said.

Jack Mintz, chair of the School of Public Policy at the University of Calgary, said “this is starting to feel like Don Getty years all over again.”

With a report from Carrie Tait