Alberta Premier Jason Kenney has delivered his austerity budget.
He promised it in the spring election campaign when he warned of a “fiscal cliff” ahead and won 55 per cent of the vote. He sharpened the plan in the summer as his appointed panel of fiscal conservatives argued for “decisive action,” and said where and how to cut.
In the budget tabled Thursday, Alberta said it will return to a balanced budget by cutting operating spending, so that four years from now, the province will be spending 2.8 per cent less than it is today.
It doesn’t sound like much, but set against the steady increase in government outlays that would normally happen owing to inflation and population growth, the government is pledging a significant and sustained spending reduction.
Mr. Kenney is quick to say these cuts are less severe than those of former premier Ralph Klein in the mid-1990s. They nevertheless will be felt. Grants to cities will be slashed. Postsecondary tuition costs will jump. Several thousand jobs in the civil service will go. The building of a new hospital in Edmonton will be pushed back several years.
Alberta last year spent $48.4-billion on health, education and other programs. The deficit was $6.7-billion. For this fiscal year, 2019-20, the deficit is budgeted at $6.5-billion, plus another $2.2-billion for contingencies that may not come to pass. By 2022-23, when Mr. Kenney’s budget allocates $47.1-billion to program spending, a surplus of $1.8-billion is pencilled in, as oil revenues rise and new pipelines open.
A fiscal reckoning in Alberta has been a long time coming. Progressive Conservative governments from 2000 through 2015 increased operating spending by 6.5 per cent a year.
The New Democrats came to power as the crash hit. The NDP actually reined things in, with operating spending increasing only by about 4 per cent a year. But the oil price slump opened up a hole in government revenues.
Alberta has a reputation as a small-government, low-tax place, but that’s a myth. Alberta is, in fact, a big-government, low-tax place. The gap between spending much and taxing little was bridged with oil revenues.
Compared with other provinces, Alberta has the lowest per-capita tax revenues, in large part because it’s the only province with no sales tax. But it also has the second-highest level of program spending.
And when Alberta’s oil revenues are low, combining low taxes with high spending isn’t sustainable.
There are many ways to achieve budget balance, and Mr. Kenney has made a distinctly conservative choice. He’s relying entirely on spending cuts. There are no tax increases, and he’s even lowered government revenues by cutting the carbon tax and corporate taxes. He’s also ruled out a sales tax.
It’s not exactly a balanced way to get back to balance. But it’s what the Premier promised voters.
In 2022-23, the combination of lower corporate taxes, the end of the carbon tax and easier emissions rules for industry will see the government forego $2.9-billion in revenue. That’s almost half the current deficit.
In a similar vein, a sales tax could produce about $1-billion in revenue for each percentage point of the levy. Neighbouring British Columbia’s 7-per-cent provincial tax will yield $7.6-billion in revenue this year; if Alberta had a similar sales tax, the budget would already be balanced.
Mr. Kenney’s budget comes with predictions of an improved economy. The corporate tax cut was heralded on Thursday. To stoke employment, the rate is dropping to 8 per cent by 2022 from 12 per cent. The government says tens of thousands of jobs could be created. Reality may be less rosy. Husky Energy this week announced layoffs; at the same time, the company said it is saving $233-million because of those lower corporate taxes.
Beyond cuts, Mr. Kenney pins his hopes on oil, like a parade of Alberta premiers before him. And oil might yet deliver. The price gap between a barrel of West Texas Intermediate and Canadian oil has narrowed. And come 2022-23, as expected pipeline capacity including the Trans Mountain expansion opens up, provincial revenues are forecast to jump.
Mr. Kenney inherited a low-tax, high-spending province. He’s aiming to transform it into an even lower-tax, medium-spending province. That’s not the only choice available, but it’s a legitimate choice. The verdict on whether it was the right one will be delivered in four years, by voters.