The Alberta government released on Thursday a budget for 2022-23 that represents a seemingly impossible turnaround from a longstanding economic downturn in the province’s oil sector, which was made worse by the COVID-19 pandemic.
The budget includes a small surplus as high oil prices buoy Alberta’s finances and the United Conservative Party government continues its push to constrain spending.
Here’s what you need to know about the budget.
A balanced budget
The Alberta government is projecting to end 2022-23 with a surplus for the first time since 2014-15, and then again for each of the following two years.
Alberta’s projected surpluses are razor thin – just $511-million in the coming year and less than $1-billion in each of 2023-24 and 2024-25. The budget includes $1.75-billion in contingencies for the coming year, including $750-million for additional COVID-19 expenses.
The balanced budget is the result of a stunning rebound in oil and gas prices and, consequently, a significant increase in royalty payments to the government.
At the same time, the province continues to constrain spending with increases remaining below population growth and inflation, including for the Health Ministry, while several departments are facing small cuts.
Overall, the province plans to spend $62.1-billion in 2022-23, which is actually a decrease of $2.8-billion forecast for the current year, in large part owing to an expected decrease in COVID-19 expenses. After that, the budget outlines increases of less than 2 per cent in each of the following two years.
Most ministries are seeing their budgets remain flat for the next three years as the government continues its push to bring Alberta’s per capita spending in line with other large provinces. In fact, the government says Alberta will fall roughly in line with British Columbia, Ontario and Quebec in 2022-23.
Former Alberta premier Ralph Klein famously boasted in 2004 that the province was debt-free, but that feels like a lifetime ago. The province’s debt is projected to be $95-billion by next year, though that is significantly better than in February, 2021, when debt was expected to exceed $100-billion by now. Debt servicing costs are now more than $2.5-billion a year.
Oil and gas
As much as successive Alberta governments have talked about economic diversification – so much so that it has become something of a running joke – the story of the latest budget is oil and gas.
Alberta has been wallowing in an economic downturn since oil prices crashed in 2014, which was exacerbated when COVID-19 brought economies around the world to a halt in 2020. But oil price increases over the past year have improved the picture dramatically.
The province is expecting to bring in $13.8-billion in non-renewable resource revenue in 2022-23 – the highest in 17 years and the second-highest ever. Bitumen royalties from the oil sands are expected to be the highest they have ever been, which has been driven in part by changes to royalty payments as oil producers pay off their initial capital investments.
Economists and critics of the government have been urging Alberta to get off the “royalty roller coaster” for years, and while there is evidence that the work on economic diversification is showing some progress, the province’s ride on that roller coaster could be particularly wild this year.
The benchmark oil price for West Texas Intermediate had already surpassed US$90 per barrel, and Russia’s invasion of Ukraine is pushing prices even higher.
But the conflict in Ukraine could also make prices especially volatile, and for Alberta that poses a massive problem in terms of budgeting for the future. For every US$1 change in the price of oil, the province’s revenues are expected to go up or down by $500-million. Just a year ago, that figure was $230-million.
The budget assumes an average price of US$73 per barrel in the 2022 calendar year and US$70 in 2023, which are toward the lower end of private-sector forecasts.
High oil and gas prices have been great for the province’s books but terrible for consumers, many of whom are coping with massive increases to their natural-gas home heating bills. The government plans to address that with a rebate program to bring down natural gas rates, though that isn’t scheduled to kick in until October, in time for next winter, and only if natural gas prices exceed $6.50 per gigajoule. Prices have been about $5 per gigajoule over the past few months – already about double what they were a year ago.
Premier Jason Kenney promised the budget would shore up the health care system to deal with the long-term challenges posed by COVID-19, as well as catching up on surgeries and other medical procedures that were cancelled over the past two years.
The health care budget, which remains the single-largest line item for the government, will see modest increases of less than 3 per cent in each of the next three years. But those increases are projected to remain below population growth and inflation, which will require restraint within the system.
At the same time, the budget earmarks money to increase intensive-care capacity, which has been pushed to the limit during the pandemic, as well as an extra $476-million for Alberta Health Services – some of the new money for AHS will go to reducing surgical wait times. The plan to reduce wait times includes having more publicly funded surgeries performed in private facilities, as well as building more capacity within the public system.
There is also $2.2-billion in capital spending for health care facilities and AHS plans to add 850 more full-time positions.
Finance Minister Travis Toews maintains that the increases in the health care budget are still “significant,” despite falling behind inflation and population growth. He said even with the continued spending restraint, Alberta will have the best-funded health care system in the country and the government has a responsibility to find ways to be more efficient.
Another potential risk to the health care budget is the severity of future waves of COVID-19. The government used $3.6-billion on COVID-19 contingency funds last year but is only including $750-million in the coming year and nothing in the following two years.
The budget is banking on a robust COVID-19 recovery that will boost personal and corporate income taxes to pre-pandemic levels.
Real GDP is expected to increase by 5.4 per cent this year compared with 2021, after an increase of 5.8 the year before.
Much of that boost is related to the oil and gas sector, but the government argues it’s also a sign the province’s push for diversification in areas such as hydrogen, tech and agriculture is working.
The unemployment rate has been stubbornly high for years and hit 11.4 per cent during the pandemic.
Economic projections included in the budget say the province has already recovered the jobs lost during the pandemic. The unemployment rate is expected to gradually decrease over the next several years, falling below 6 per cent for the first time since 2015 next year and reaching 5.5 per cent by 2025.
Despite the unemployment picture, the budget also warns of labour shortages as companies say they can’t find workers with the specific skills they are looking for.
To that end, the budget includes funding to increase postsecondary enrolment in areas with skills shortages, including a plan to create 7,000 additional seats in programs related to technology, financial services, health and aviation.
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