Not many surprises in Alberta’s stay the course budget

There were few surprises when Finance Minister Joe Ceci stood to table the New Democratic Party’s third budget since forming government in 2015.

What I expect were strategic leaks over the past week revealed some popular highlights included in the budget, giving the government some positive media in the days before the budget was released. The construction, revitalization and renovation of schools and funding for a new hospital in south Edmonton were two of the most notable tidbits to be released in advance of yesterday’s budget speech.

If the leaks were indeed intentional, it was not a bad communications strategy considering the government’s current financial situation. It created a positive distraction from two big numbers that the conservative opposition parties want to focus on – total budget spending and the budget deficit.

But when the budget was tabled yesterday, neither of these numbers were really a surprise. We knew the NDP was not planning to make deep cuts to provincial program spending in this budget. And we knew from Ceci’s third-quarter update from the last fiscal year that the deficit would likely remain over $10 billion – it is projected to be $10.3 billion, down around $500 million from $10.8 billion last year.

The conservative opposition attacked the budget, which was also something we knew would happen. A Wildrose opposition press released called the budget a “a debt-fueled disaster” and the Progressive Conservatives claimed it took Alberta over a “fiscal cliff.” A press release from Alberta Party leader Greg Clark claimed the budget was “uninspired, irresponsible and focused only on the short term.”

Also not surprising was the response from Liberal leader David Swann, who took a more reasoned approach by applauding the government on investing in public services and infrastructure, and then pointing out where the budget failed.

As AlbertaPolitics.ca author David Climenhaga writes in detail, Rachel Notley‘s NDP government rejected the kinds of conservative fiscal policies that created the infrastructure deficit Alberta has today.

The government continues to make significant investment in public infrastructure, which is long overdue in Alberta. Along with a new hospital in Edmonton, the budget includes funding for renovations at the Misericordia Hospital and new construction at the Royal Alexandra and Glenrose hospitals (which was not previously announced, so that was a surprise).

One question that remains unanswered is how, in the long-term, the government plans to deal with the revenue shortfall created by the drop in the international price of oil. For many years, the Alberta government became over-dependent on oil and natural gas royalties to pay for a large portion of the daily operations of government.

The old PC government used those high royalty revenues to subsidize corporate and personal tax cuts, which proved politically popular in the short-term but financial irresponsible in the long-term. When the international price of oil dropped in 2014, so did about $10 billion worth of expected government revenue.

The NDP took some steps to diversify revenue with moderate increases to corporate and personal taxes after they were first elected 2015 but it was nowhere enough to fill the revenue shortfall (Albertans still pay some of the lowest taxes in Canada). The positive news is that Alberta still has the advantage of having a low debt-to-GDP ratio, which means at least in the short-term our province should be able to deal with being in a deficit situation.

Overall, I am not surprised about what is and is not included in the 2017 provincial budget. I am encouraged that the NDP is not heeding the calls of the conservative opposition parties to make deep funding cuts to public services and infrastructure investments, which would be detrimental to Albertans’ quality of life during this economic downturn.

7 thoughts on “Not many surprises in Alberta’s stay the course budget

      1. FCS

        In the short-term, no, just download all the costs to the next 5-10 years or to the next generation. The analysis here is starting to resemble a joke and pretty much cheerleading the NDP. You accused the PC to use high royalty revenue to subsidize their budget, but the NDP is practically doing the same thing by basing their deficits on the assumption that royalty revenue will come back to subsidize future budgets.

        Energy prices are better than expected, yet the budget deficit before and after the assumption revisions stay the same at $10 billion per year. In just 2 years of governing, the NDP has incurred cumulative deficits about the size of the Heritage funds.

        And all of these are not detrimental.

        Reply
  1. J.E. Molnar

    It’s a bit rich for Brian Jean and Jason Kenney calling the budget “a debt-fueled disaster” and a “massive intergenerational transfer of wealth” when they were part of the Harper government that voted for seven deficit budgets and added $144B to the national debt, all when oil was at $100BBL. Where was their manufactured outrage then?

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  2. David

    It’s also a bit rich for the PC’s and McIver to criticize the deficit. Perhaps he forgot the string of 5 consecutive deficits his party had several of which were when he was part of the government . Oh how soon they forget. I suppose the Alberta PC’s could claim to be a bit better than the Federal Conservatives, (five deficits is better than seven) but not by much.

    It’s funny how it is the end of the world and the sky is falling when the NDP has deficits, but there were fine when the governments Jean and McIver were a part of had them too.

    I think the Alberta economy is beginning to recover now in 2017, but the recovery is still fragile and now is not the time for big time austerity. Hopefully by this time next year the recovery will be stronger and the provincial government can start to make more noticeable reductions to the deficit.

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  3. Jerrymacgp

    Alberta has a revenue problem, caused primarily by citizens’ desire to have something for nothing: world-class public services, without having to pay for them through the tax system. To that extent, the late PC Premier Jim Prentice was correct, although impolitic, when he said Albertans should “look in the mirror” for the caus of Alberta’s fiscal woes.

    However, now is not the time to address that challenge. The economic recovery that is only now beginning to take shape is far too fragile for government to try increasing taxes, even modestly, or royalties. But in a couple or three years, when things should be booming along once again, is another story.

    – Non-renewable resource royalties should be increased to 33⅓% at the wellhead, phased in over three years (11.1% in Year One, and 22.2% in Year Two, & 33.3% in Year Three), with revenues from those increased royalties invested in a sovereign wealth fund from which only interest revenues, and not principle, are withdrawn and added to general revenue. As the fund grows from ongoing royalty deposits, the proportion of government revenues coming from interest on those funds will also grow.

    – Income taxes should be increased for those that can afford to pay them, with a truly progressive tax system that makes any earnings below the low-income cutoff tax-free.

    – Corporate taxes should also be increased, and deductions only allowed for input costs that create jobs, like hiring and raw materials, not for things like stock swaps, mergers and acquisitions.

    – I am not in favour of a GST-harmonized PST, because sales taxes are inherently regressive: lower-income taxpayers pay a higher proportion of their incomes in sales taxes than higher-income taxpayers. Perhaps some form of luxury tax or wealth tax, or inheritance tax, might be a better option. I’m sure ways could be found to protect those of modest means, and the so-called “middle class”, from being hit with such taxes, but still allowing us to collect from gazillionnaires.

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  4. Michael

    This budget was as expected, I guess, and not particularly courageous. While I can see the motivation for continued borrowing, especially to finance infrastructure, during hard times, and agree that our debt to GDP ratio in this province is not yet anything to be too concerned about, I would have been happier to see more done on the revenue side. The overall picture produced is that the NDP are just doing again what the PCs did for years – hoping oil and gas prices rise, and planning to use revenue from natural resources to fund services. The danger is that those resource prices might never recover fast enough to allow the debt to be paid down, and that the GDP might stay relatively low

    The modest income tax increases the NDP brought in don’t go far enough. People with a taxable income of 125000 are not even affected. For salaried employees this will often equate to a gross income of 150,000, and of course some families have two comfortable incomes of that order here in Calgary. I believe such incomes put people at least in the top 10% in Canada, and such people should pay more tax. I am comfortably off, yet the final rate of income tax on my gross income is about 20 % (federal plus provincial) – I can certainly afford to pay more tax, and I am not even affected by the new NDP income tax rates as I am below the threshold.

    Reply

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