Alberta Finance Minister Joe Ceci delivered the third quarter fiscal update for the province on Feb. 27. The update contained few surprises, which, given the state of the oil patch for most of the fall, was actually a reasonably good-news story.
The highlights of the update included higher than budgeted revenues for personal income taxes and non-renewable resource revenues. Overall expenses are also slightly higher than budgeted, but not enough to cancel out the increased revenues, resulting in the projected deficit for year-end coming in some $1.9 billion below the original budget.
The government also included a 19-page addendum to the budget, laying out its proposed “path to balance” by the 2023–24 fiscal year. As with previous long-term forecasts, this one reflects the government’s commitment to no new taxes, no tax increases, and no changes to the province’s royalty regime. It also highlights the government’s commitment to continue looking for “efficiencies” in the public sector, particularly health, without making any significant cuts to funding levels.
Instead, the NDP path to balance relies heavily on the assumption that Alberta bitumen production will continue to expand, market access will improve, and the price of oil will rise after 2020. This will, in turn, generate increased individual and corporate tax revenues and a jump in royalty revenues for the province.
All of these factors, the government says, will result in the deficit having been eliminated by budget 2023–24. It will also mean a total accumulated debt load of some $95 billion by the end of that year, a number that drops to $56 billion when all of the province’s financial assets are taken into account.
A net financial debt of $56 billion is really not excessive for an economy the size of Alberta’s, especially when compared to the balance sheets of the other provinces and the federal government, but it is a significant number that will need to be dealt with over time nonetheless.
Not surprisingly, in their responses to the fiscal update, Jason Kenney and the UCP chose to focus almost exclusively on the $95 billion gross debt number. Suggesting that forecasting this level of debt represents failed fiscal management by the NDP—they went as far as to pay for full wraps of both the Edmonton Journal and the Calgary Herald to deliver that message to Albertans.
On the inside of the wraps, the UCP listed a bunch of very large numbers highlighting how many nurses, teachers, schools, and hospitals could be paid for with that amount of money. That messaging by the UCP was an interesting choice, given the degree to which it risks highlighting that the NDP’s commitment to not raising taxes, not firing nurses and teachers, and continuing to build hospitals and schools during the downturn is precisely why the province has incurred that level of debt.
Put another way, the UCP message could be read as a promise to pay down the debt by putting nurses and teachers out of work and not funding new schools and hospitals. Clearly less-than-stellar messaging by the UCP, especially given how much money they must have spent on those wraps.
What Jason Kenney has not spoken about in his response to the NDP’s proposed path to balance are the specific details of his own path to balance. To date, Albertans have heard that a UCP government would balance the budget within one term of coming to office, which would mean eliminating the deficit one year before the NDP’s are promising to.
Kenney has also promised at different points in the last year to eliminate the carbon tax, return to a 10 percent single-rate tax, and cut corporate and small business taxes. At the same time, however, he has vowed not to drastically cut spending on front-line public services, keep up infrastructure spending, and not defund major transit projects currently being funded out of the carbon tax.
In other words, Kenney will reduce revenues, not cut spending drastically, and still manage to eliminate the deficit a year before the NDP. Beyond the obvious question of what kind of budget magic will make that possible, what Albertans should really be asking is where would the provincial debt be in 2023–24 if the UCP wins the next election.
Based on what few specifics he has released thus far of his own path to balance, it is very difficult to fathom how Alberta’s net debt at the end of the next four-year government would be any different under a UCP government than it would under the NDP.
The bottom line is that there are only three possible ways to eliminate deficits and reduce debt in Alberta: increase taxes, slash spending, or hope for an increase in oil prices. Neither of the two major parties in this election is willing to even consider the first option, and both have been reluctant to publicly embrace the deep cuts to public services option. Both Kenney and Notley will to some degree base their paths to balance on the dual hope that we will actually get some pipelines, and that those pipelines will directly result in increased oil prices and more jobs.
Given that hope-and-a-prayer approach to budgeting, it really does make it difficult to understand why either party would be making balancing the books, and what the debt will look like in four years, such key planks in their platforms.
Ricardo Acuña is executive director of the Parkland Institute, but the opinions expressed here are his own and do not necessarily represent those of his employer or any other group with which he is associated.
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