The Alberta government will release a budget on Thursday that will reveal the ruin left by the COVID-19 pandemic and an oil price crash a year ago as the province lays out a plan to piece its finances back together.
The United Conservative Party government has already given up on a promise to balance the budget before the next election in 2023, though Thursday’s fiscal plan is expected to continue to push policies designed to trim costs and stoke economic growth. As well, it will focus on navigating the rest of the public-health crisis. The province is ramping up its vaccine plans amid fears of a coming third wave.
The province has also been facing increasing pressure to stabilize its finances by reducing its reliance on volatile oil prices, with economists and even groups such as the Business Council of Alberta recently urging the government to consider a sales tax to fill that gap. Premier Jason Kenney has rejected the idea and said this week’s budget won’t contain measures to bring in significant sources of new revenue.
Finance Minister Travis Toews said it’s not possible to provide a path to a balanced budget.
“We will need additional economic clarity before we can deliver that to Albertans, in terms of timing and method,” Mr. Toews said in an interview.
“Right now, the No. 1 priority is ensuring that we’re resourcing health adequately to deal with the pandemic challenge, and this budget will reflect that. The second priority … is economic recovery and growth.”
Recent increases in oil prices will improve the province’s outlook, though Mr. Toews said the government’s projections for the industry are conservative.
Alberta was already in rough shape in early 2020, more than five years after oil prices collapsed and sent the province’s economy into a downturn. Tens of thousands of Albertans had lost their jobs and the government ran up years of deficits in a province that once prided itself for paying off its debt in full.
The Alberta government tabled a budget last February that projected increases in oil revenues and a balanced budget in two years.
But before that budget could pass, oil prices crashed anew due to a price war between Saudi Arabia and Russia, and then the COVID-19 pandemic shut down much of the world’s economy. A projected $7-billion deficit for 2020-21 later ballooned to more than $21-billion and the idea of a balanced budget in two years vanished.
Mr. Toews said the province has made progress bringing Alberta’s per-capita spending down, closer to places such as Ontario and Quebec, and this week’s budget will include additional measures. The government has already announced job cuts affecting thousands of workers and has identified public-sector wages as an area for further reductions.
The budget won’t look at new revenue sources, though the government intends to strike a panel near the end of its first term to look at its tax structure.
Mr. Toews argued that it would be too damaging to impose new taxes in the middle of a downturn and he noted that any new taxes would require a referendum.
“There will come a time when it will be important to take a hard look at the efficiency and appropriateness of Alberta’s revenue and tax structure,” he said. “Right now, I think it’s premature.”
The Business Council of Alberta argues that now is precisely the time to at least start talking about taxes after the pandemic laid bare just how exposed the province’s economy is to resource prices. While Albertans have become accustomed to booms and busts, many experts have warned that there is little chance of the province returning to the riches that came when oil was above US$100 per barrel.
The council released a report last week that said the province should consider implementing a harmonized sales tax to provide a stable and predictable source of income. The province could add billions in new revenue while still having the lowest consumer tax in the country, the council argued.
The report estimated that to balance the budget, the province would need to either increase taxes by more than a third or cut spending by 27 per cent. The council’s president, Adam Legge, said the province needs to find a less extreme solution in the middle, though he said such a change would need to wait until after the pandemic.
“We can get only so far through economic growth and tweaking our expenses,” Mr. Legge said in an interview. “What we really need to do is have a revenue model that is stable, certain, equitable, competitive and transparent.”
The Opposition NDP have called for the government to use Thursday’s budget to reverse previous cuts and double down on health care and economic diversification.
NDP Leader Rachel Notley said the UCP government has been aimless when it comes to managing the economy and she said there were signs even before the pandemic that its policies were not working.
“We’re coming out of what has been one of the biggest economic challenges faced by Alberta and all parts of Canada in many, many years, and we need a government that is going to move forward in a way that focuses on diversification, on sustainable job creation, and on a recovery.”
She also condemned the government’s focus on cuts, arguing that it doesn’t make sense to compare Alberta’s spending with much larger provinces such as Ontario and Quebec, whose large populations provide economies of scale. And lower spending in places like B.C., she said, has meant higher rates of poverty and fewer supports for vulnerable people.
Ms. Notley agreed with the government that it would be a bad time to impose a sales tax but also said the province should eventually look at reforming its tax structure – starting by reversing corporate tax cuts that were accelerated last year.
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