The Alberta government will freeze spending as it relies on a rebound in resource revenue to stem the bleeding from the COVID-19 pandemic and an economic downturn that has dragged on for years.
The United Conservative Party’s third budget since taking office, presented Thursday, projects an $18.2-billion deficit for 2021-22, which is second only to the province’s record $20.2-billion shortfall estimated in the current year.
The COVID-19 pandemic and a crash in oil prices a year ago gutted provincial revenue and added billions in extra expenses for the health care system and economic support. Those twin catastrophes happened as Alberta’s economy continued to suffer from a collapse of oil prices in late 2014 that sent the province into a recession.
The latest fiscal plan includes a modest increase in health care spending in the coming year and then keeps the health ministry’s budget flat for the following two years. Over all, government spending is projected to be roughly the same in 2023-24 as when Premier Jason Kenney’s government took office in 2019, despite increases in revenue and federal transfers, as well as added pressures because of population growth and inflation. That level of restraint will require cuts to jobs and public-sector wages.
The province says it is expecting to recover to prepandemic economic activity by 2022 and resource revenue to bounce back by the following year.
But even then, the government would enter the next election with an $8-billion deficit projected for 2023-24, and there is no clear plan to fill that gap. Mr. Kenney has said his goal is to bring per-capita spending in line with provinces such as British Columbia, Ontario and Quebec, and the current budget predicts that will happen within three years.
The government plans to examine its revenue toward the end of its first term, but there is little appetite right now to find new sources of income through taxes or even begin that discussion. Mr. Kenney has rejected calls from economists and business groups to consider a provincial sales tax in the only province that doesn’t have one.
Finance Minister Travis Toews acknowledged there is no way he can fulfill a previous pledge to balance the budget by the end of the UCP’s first term. Instead, the government is facing seemingly intractable deficits in a province that once prided itself on being debt free.
“I’m not happy with COVID-19 and having to deal with the pandemic and the resulting economic challenges of the province, but this is where we find ourselves,” Mr. Toews told reporters during a conference call on Thursday.
“I am also very disappointed that we can’t present a balanced budget in our first term. … We simply can’t do that.”
Mr. Toews declined to speculate about how the government will eventually fill the significant hole that will remain. Nor did he provide any details about the promised review of the province’s tax system, when precisely that will happen, or what options would be up for debate.
“Right now is not a time to even be considering major revenue adjustments or tax increases,” he said.
“At that point in time [when per-capita spending is under control], we will have much more economic clarity and I think that will be a very important time then to evaluate what more we need to do.”
NDP Leader Rachel Notley said the spending freeze will amount to severe cuts on a range of services, including health care and education, at a time when Albertans need them most. She said failing to account for population growth or inflation over the next several years is the equivalent of cutting $4-billon since the UCP took office.
She said the government’s economic plan was failing even before the pandemic, and there’s nothing in the budget that will turn that around.
“Even before the world was hit by COVID-19, Jason Kenney had put Alberta on its back foot,” she said. “Since then, he has made the economy even worse by failing to manage the pandemic. And now every Albertan is being forced to pay for his mistakes.”
Mr. Toews tabled a budget last February that included an optimistic view of the oil sector and a balanced budget in time for the 2023 election. Before the budget could pass in the legislature, COVID-19 and an oil price war between Saudi Arabia and Russia destroyed the government’s economic projections almost overnight.
The deficit for 2020-21 has nearly tripled since then, as revenue fell by almost $6-billion, largely because of significant drops in natural resource royalties and income taxes, and the pandemic added almost the same amount of new spending.
The government warned last summer that the deficit for the year could top $24-billion, though that shrank to $20.2-billion in part owing to a stronger-than-expected recovery and recent increases in oil prices.
The budget relies on oil price estimates that are below private-sector projections. It assumes West Texas Intermediate will average US$46 a barrel in the coming year and increase to US$56.50 by 2023-24. WTI was trading at about US$63 on Thursday.
The budget does not factor in the financial impact of U.S. President Joe Biden’s decision to kill the Keystone XL pipeline, which the province agreed to support with a $1.5-billion investment and $6-billion in loan guarantees. The budget estimates the death of the pipeline could cost about $1.3-billion, but the government isn’t including that hit in the budget without knowing whether it can recoup any of those losses, such as with a complaint under existing provisions in the North American free-trade agreement.
Taxpayer-supported provincial debt is projected to continue to climb to $132-billion by 2024, or 26.6 per cent of GDP, which will push yearly debt-servicing costs to $3.3-billion. The government wants to keep the debt-to-GDP ratio below 30 per cent.
The government appointed a panel that came back in 2019 with a series of recommendations to bring Alberta’s costs down in line with other provinces. That work continues in Thursday’s budget with spending freezes or cuts across most ministries.
Health care spending will increase in the coming year by about $900-million to $21.4-billion, where it is projected to remain until 2023-24. That does not include a $1.25-billion contingency to pay for added COVID-19 costs, such as the vaccination program.
The government will cut more than 1,000 public-sector positions across various ministries and agencies, though some of that will be done through attrition and the total includes reductions previously announced. The UCP’s first budget in 2019 promised to shrink the public sector by 7.7 per cent through cutting thousands of jobs over several years.
The government has also said it wants its unions to take wage cuts, which will make for contentious negotiations this year.
At the same time, Alberta Health Services will add almost 3,000 new jobs for measures such as reducing surgical wait times and adding continuing care capacity.
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