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Alberta opts for deficits, Newfoundland chooses harsh tax hikes amid oil woes

Alberta Finance Minister Joe Ceci donates work boots to Women Building Futures student Kim Brertton during a pre-budget photo opportunity in Edmonton.

JASON FRANSON/THE CANADIAN PRESS

The stinging impact of a year of persistently low oil prices has left economic wreckage across Canada, with the distress particularly acute in Alberta and Newfoundland and Labrador.

With unemployment rates shooting up and both economies in distress, the two provinces unveiled dramatically different approaches to dealing with their deficits on Thursday.

Alberta's New Democrats took a hard turn against the province's fiscally conservative past, adopting a plan that will lead to record debt. Newfoundland and Labrador has instead embraced austerity, tax hikes and layoffs.

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Alberta has opted for years of deep deficits as the province tries to cope with a collapse in oil prices without resorting to the type of austerity programs that have left scars in the past.

With a deficit of $10.4-billion this year, Alberta Finance Minister Joe Ceci says he doesn't expect the province to run a surplus before 2024 – meaning a decade of red ink. Mr. Ceci has ruled out new taxes or cuts to health care and education. Instead, he's banking on a tight-fisted approach to spending and an improving economy to eventually return to balance.

The Alberta government's measures are aimed at righting the ship after a steep drop in oil prices that has seen more than 39,000 jobs lost over the past year and unemployment surge from 6 to 8 per cent. The oil patch's dip has sent waves across the Canadian economy as highly paid jobs and a demand for materials have plunged.

Nowhere outside of Alberta was the pain of low oil prices more apparent on Thursday than in Newfoundland and Labrador, where a four-month-old Liberal government turned to harsh austerity measures to control a ballooning deficit.

The Atlantic province is projecting a $1.8-billion deficit over the next year, but Finance Minister Cathy Bennett warned that the shortfall would have been closer to $2.7-billion had it not been for far-reaching tax increases and hundreds of cuts in the civil service.

Income taxes, gas taxes and other premiums are increasing, as is the province's harmonized sales tax – jumping from 13 to 15 per cent. Nearly one-third of provincial revenues came from oil royalties before the crash and credit rating agencies have downgraded the province's debt – already equal to 35 per cent of GDP. According to budget forecasts, Newfoundland and Labrador's unemployment rate will increase to nearly 20 per cent by 2019.

While Newfoundland and Labrador is taking aggressive measures to combat the effects of low oil prices, Alberta's budget is resting largely on economic factors beyond its control. Mr. Ceci expressed some hope on Thursday that a rapid recovery in energy prices would help him balance the books sooner.

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"Our province faces a choice. The first option is to slash and burn vital programs, services that Alberta families count on," Mr. Ceci said while speaking with reporters before tabling the budget. "It's the wrong path. It moves us backward. Instead we'll carefully manage spending."

Underscoring the headwinds facing Alberta's economy, Premier Rachel Notley's New Democrats will need to repeal a law it passed only six months ago capping debt at 15 per cent of the province's GDP. Mr. Ceci says Alberta will no longer have a debt limit. Based on current projections, Alberta will blow past B.C. and have Canada's third largest provincial debt by the end of the decade.

Oil and gas royalties were responsible for one-fifth of Alberta's revenues in recent years. Out of a $51-billion budget, Mr. Ceci expects to collect only $1.4-billion in royalties this year – the lowest level on record when adjusted for inflation.

Mr. Ceci is vowing to reduce spending increases to the lowest levels seen in years.

Health-care spending, which represents nearly half of provincial spending, was increasing at nearly 6 per cent annually under the previous Progressive Conservative government. Mr. Ceci says he will keep spending increases to under 2.5 per cent annually.

Alberta's economy is expected to begin growing again next year, ending a recession that started in early 2015 as oil prices slumped from over $100 (U.S.) per barrel to around $30 earlier this year. The resulting downturn saw the province's unemployment rate rocket above the national average – the first time in nearly three decades that the oil-rich province had more people unemployed than the Canadian average.

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With the country's youngest population and workers from Calgary to Fort McMurray claiming the highest average salaries in Canada, Alberta has long been one of Canada's job leaders. While the federal Liberals introduced more generous employment insurance benefits in March, the Notley government had been facing calls to create jobs.

"We are continuing to put the pedal to the metal so that we can support Albertans through this downturn," Mr. Ceci said.

Thursday's budget set aside $250-million for a package that Mr. Ceci says will help create 100,000 jobs over the next three years. Nearly half those positions will be created by the government's five-year, $34-billion infrastructure blitz, according to Economic Development Minister Deron Bilous.

To help struggling companies, Alberta's small business tax will be cut from 3 per cent to 2 per cent, matching the tax in neighbouring Saskatchewan. The government has also unveiled two new tax credits valued at $165-million to support small and medium businesses.

The opposition parties have warned that by refusing to make small cuts now the province will need to make deep spending reductions later. Alberta's health care, education and human services cost more per capita than Quebec, Ontario or B.C.

"There is no semblance at all of a plan to get us out of this mess at any time in the future," said Brian Jean, Leader of the Official Opposition Wildrose Party.

"The only realistic jobs plan here today is to make the size of Alberta's government bigger. This budget does make thing worse for Albertans," he added.

With a report from Rachelle Younglai

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