As Alberta's economy muddles through a second consecutive year of recession, Finance Minister Joe Ceci won't have much extra money to deliver on Premier Rachel Notley's promise of creating a fairer province in next week's budget.
Many details about the first full budget from Alberta's New Democrats have been released ahead of its unveiling next Thursday. The deficit is expected to be $10.4-billion – not a record but the largest in a generation – and the government has reneged on a promise to return the budget to balance by the end of the decade.
The cause of the province's fiscal challenge is persistently low energy prices – as well as expensive government services that can't be paid for solely by Alberta's low personal and corporate tax rates. With the price of oil languishing below $40 (U.S) a barrel, billions of dollars in annual revenue are missing from the province's treasury. The royalties from oil and gas that once paid for one-fifth of the province's services have all but disappeared. While Albertans are used to their province's economic roller coaster, one that plunges with deep layoffs and climbs with employment surges, this downturn is more pronounced and long lasting than those seen in the past two decades. "There is no question that this is a very serious and prolonged shock, the most dramatic in generations," Ms. Notley said during a televised address on Thursday.
While former premier Ralph Klein took the axe to the province's health and education systems in the early 1990s when faced with a similar predicament, Mr. Ceci has vowed to do the opposite. A social worker by training, he has said that the NDP will not cut spending on health, education or social programs under his watch.
While speaking with Globe and Mail reporters at his Calgary home in late March, Mr. Ceci laid out his vision of a spending plan that will continue to provide for the province's quickly rising population, expected to continue growing by 2 per cent annually over the next decade. "[The budget] will be one to support Albertans during this downturn. It will be one that looks at ensuring that the quality of life in this province, that we've all come to appreciate, is not degraded," he said.
Despite a yawning deficit, Ms. Notley's cabinet won't have much additional money to spend. "Albertans aren't looking for any significant increases in public spending in times like these," she said Thursday.
With the NDP having already ended the province's flat tax on incomes and announced plans for a carbon tax – putting an end to Mr. Klein's vaunted "Alberta advantage" – the 2016 budget will be Ms. Notley's first opportunity to put forward a comprehensive plan for what the government expects to accomplish over the rest of its mandate.
"This coming budget is going to be a time to reveal that plan, this is going to be the signature NDP budget," said Chaldeans Mensah, a political scientist at Edmonton's MacEwan University.
A jobs plan
In recent months, Alberta's unemployment rate has soared above the national average as a result of mass layoffs in the oil patch, an unusual position for a province that typically enjoys a jobless rate several percentage points below the Canada-wide number.
After a bleak year, Alberta's unemployment rate took a positive turn in March, settling at the national average of 7.1 per cent. That followed a busy month of hiring in the province. Still, 37,900 more Albertans were out of work last month than a year earlier.
While running for office in the spring of 2015, Ms. Notley's NDP put forward plans for a tax-credit program that she said would create 27,000 jobs. At a cost of $178-million over two years, the tax credit would have refunded 10 per cent of an employee's salary up to a maximum of $50,000.
Nearly a year later, the NDP has quietly backed away from that plan. In March, Alberta's Minister of Economic Development and Trade conceded that no money had yet been allocated to the tax credit, and worsening economic conditions had led the government to rethink the proposal.
Mr. Ceci tabled a stopgap budget in October that unveiled plans for a five-year, $34-billion spending program on new roads, schools and hospitals. Partly as a response to the province's crumbling infrastructure, the spending blast has also been promoted as a dose of stimulus to employ idled construction workers.
The NDP also made $2-billion in extra capital available from provincially owned financial institutions for Alberta's small and medium business. Trade Minister Deron Bilous has also announced plans for a $500-million program to help diversify the province's oil-dependent economy – he says the plan will create 3,000 jobs.
Next Thursday's budget is expected to go further, with a new jobs plan. "The upcoming budget will lay out an aggressive plan to support job creators and workers across the province," said Marion Nader, Mr. Bilous's spokeswoman.
Small business tax cut
Ms. Notley signalled in early March that Alberta's small business owners may get a tax break in next Thursday's budget. The current rate for businesses with an income of under $500,000 is 3 per cent in Alberta, the highest in western Canada.
Small businesses in B.C. pay a 2.5-per-cent rate, those in Saskatchewan pay 2 per cent, while Manitoba small businesses pay no taxes.
"On the issue of the small-business tax, I would suggest that we simply all stay tuned for the budget," Ms. Notley told reporters on March 15.
Alberta's Official Opposition Wildrose Party has been calling for the NDP to drop the rate to 2 per cent, matching Saskatchewan. According to Wildrose Leader Brian Jean, the one-percentage-point decrease would cost around $150-million when the economy returned to normal growth.
The tax cut would help small businesses that have suffered as the province's oil and gas industry has cut back quickly on capital spending. By the end of 2016, spending is expected to be $50-billion lower than it was in 2014, when total spending was $81-billion, according to the Canadian Association of Petroleum Producers.
It's the largest two-year drop in spending since the organization began collecting data in 1947.
The Calgary Chamber of Commerce has also called on the government to create a tax credit that would allow Albertans who invest in small business to claim a refund equal to 30 per cent of their investment. The Alberta government hasn't indicated whether it is considering a credit as well as a tax cut.
If Mr. Ceci decides not to go forward with a tax cut, he'll be following Ottawa's lead. Despite a pledge by Prime Minister Justin Trudeau to reduce the federal small business tax over three years, the Liberal government instead choose to freeze the rate at 10.5 per cent in its March budget. Ottawa also cancelled a reduction to 9 per cent in the rate legislated by the former Conservative government.
Carbon tax details
The budget will contain the first details about who will pay Alberta's new carbon tax and who will be eligible for rebates when the tax takes effect on Jan. 1, 2017. The economy-wide tax will start at $20 a tonne in 2018, rising to $30 a tonne the following year.
Unlike the carbon tax adopted in neighbouring B.C., the Notley government has announced that Albertans will not be receiving tax cuts to offset the $3-billion expected annually from the new tax.
Along with a plan to phase out all coal-fired electrical generation in Alberta by 2030, the new carbon tax is part of Ms. Notley's pledge to begin reducing the province's carbon emissions. While heavy polluters in the oil sands already pay a levy on emissions above a limit set by the government, the new carbon tax will be far reaching, expected everywhere from the price at gas pumps to electrical bills.
"You can expect some of the revenue recycling measures. We've said that there will be a rebate, so you'll see some details on that and we've pledged some adjustment for small business, that'll be in there," said Alberta Environment Minister Shannon Phillips.
Rebates for low and middle-income earners, as well as small businesses, are expected to provide 60 per cent of Albertans with some form of financial relief from the new tax. Last November, the government predicted the tax would cost the average household $470 annually by 2018.
While some of the tax will go to households, the government expects to redirect a large amount of it toward green technology and a new energy efficiency agency.
The tax was first announced last November and was accompanied by a pledge to cap carbon emissions from Alberta's oil sands at 100 megatonnes – they currently emit 70 megatonnes annually. The province is also looking to have one-third of power generated by renewables by 2030.
Holding the line
Ms. Notley's new NDP government implemented tax increases soon after taking office last May, fulfilling a main campaign promise. The province's corporate tax rate increased to 12 per cent from 10, and the 10-per-cent flat tax on personal incomes was replaced by five new brackets, increasing the rate paid by Albertans making over $300,000 by 50 per cent.
Mr. Ceci has ruled out further tax increases, shooting down any suggestion of a provincial sales tax. Without large tax hikes in the future, the Finance Minister says he will look to hold spending increases to a minimum in health, education and social services to help balance the budget.
Speaking at the Canadian Club in Calgary on Friday, Mr. Ceci said his goal is to "hold budgetary increases to below population growth plus inflation levels."
Alberta's operating expenses increased by an average of 4.6 per cent annually between 2009 and 2015. According to Ms. Notley the rapid spending increases created waste and inefficiency in government. In the 2015-2016 fiscal year, the first where the NDP was in office, spending increased by only 2.8 per cent. Ms. Notley says her government will keep increases to that lower level in the future.
"We must stick to a plan that carefully brings the budget back into balance as the economy recovers," she said on Thursday.
Alberta spends more per capita on health, education and social services than Quebec, Ontario or B.C.
While the Notley government had pledged to return the budget to balance by 2018, Mr. Ceci says that is no longer possible. Trevor Tombe, an assistant professor of economics at the University of Calgary, says he'll be looking for a clear plan to eliminate the deficit in Thursday's budget.
"As long as they are spending less than population growth, balance will eventually occur. So a rough, back-of-the-envelope calculation says that'll take about 10 years. That might be their plan. The question is how much debt we'll build up by then," he said.