Alberta is increasing its capital debt by 60 per cent even as the latest provincial budget shows high energy and income tax revenues will boost the province’s operating surplus to $2.6-billion.
The Progressive Conservative government insists that since it can borrow at a rate of less than 4 per cent, has high investment returns and a burgeoning population clamouring for new bridges, schools and health centres, it makes sense to take on debt to build at the same time as it balances the budget for spending on programs.
The budget released on Thursday uses the dramatic increase of about 100,000 people a year to justify $5.1-billion in new capital debt in 2014-15, bringing the total capital debt to $13.6-billion. The decision to borrow for infrastructure improvements – including flood rebuilding and the beginning of a new section of ring-road for Calgary this year – raises the hackles of fiscal hawks who believe the province should not look for loans with the North American oil price at about $100 (U.S.) a barrel.
“Even while we borrow for capital, Alberta has no net debt – unlike other provinces, unlike Canada and unlike the United States,” Alberta Finance Minister Doug Horner told reporters. “While other places borrow to keep the lights on, to pay off the credit cards, Alberta only borrows to create more assets.”
Tax and energy windfalls are a major part of the budget’s projected $44-billion in revenue for 2014-15.
A budget without the deficit and worries over oil prices of the previous year – and no tax increases – was sorely needed in a week that began with a Calgary Herald poll showing Premier Alison Redford with the approval of just one in five Albertans, and her party trailing the Wildrose in support.
The Premier has also been hammered daily in Question Period over her use of government planes, and a $45,000 trip to South Africa. While Ms. Redford might hope the budget will change the channel, her caucus members continue to complain quietly about the political cost of the missteps.
However, Wildrose members said on Thursday that Albertans are concerned about more than expense controversies. The Official Opposition emphasized the budget’s prediction that Alberta will have accumulated $21-billion in capital debt by the end of 2016-17. The party’s finance critic Rob Anderson called that a disaster.
“During the best revenue years of our province’s history, we’re taking out the most debt in its history. I don’t know how they can possibly justify that.”
Even the budget numbers are up for debate under a complicated new system introduced last year that accounts for operating costs, capital costs and savings separately. While the government borrows cash to build infrastructure, it said this year it will have a $2.6-billion surplus when it comes to operations, or paying for day-to-day spending. The government said the consolidated surplus – the figure used in the old budgeting system – is $1.1-billion. Wildrose said that when the money the government is borrowing is added in, the province has a $2.7-billion deficit.
However, the fact that the government is also putting money in savings accounts, and tax revenue is forecast at 5 per cent higher than last year due to population and economic growth does not hurt the governing party’s political fortunes.
Heavily reliant on non-renewable resources, Alberta saw oil and gas revenues increase by 6.7 per cent compared to last year mainly due to higher oil prices, the low Canadian dollar, and a reduction of the discount price – or “differential” – that Western Canadian oil producers receive for their heavy oil compared with the predominant North American price.
On spending, the budget does not have a lot of give from the belt-tightening of last year. Total operating expenses are forecast to increase by a conservative 3.7 per cent from last year, leading to concerns that public services are not keeping up with population growth.
“Our classrooms will continue to be overcrowded and jam-packed. Our post-secondary funding has not even kept pace,” Alberta Liberal Leader Raj Sherman said.