Varcoe: Ceci faces business backlash as budget reaction builds
|calgaryherald.com 20 Mar 2017 at 16:33|
Finance Minister Joe Ceci told a Calgary business audience Monday that won t deviate from the broader NDP government strategy of protecting public services and front-line jobs. Greg Southam / Edmonton Journal
Give Joe Ceci full marks for wading into a skeptical crowd Monday morning, but the finance minister is finding out he won’t get an easy ride from Alberta’s business community on his new budget.
The Calgary-Fort MLA is busy pitching the fiscal plan, and stopped at a Calgary Chamber of Commerce breakfast to discuss the Notley government’s $54.9-billion spending blueprint.
Once Monday’s speech ended, chamber chief executive Adam Legge wrapped up the affair by dissecting the budget with surgical precision.
In just two minutes, he carved up what the business community dislikes most about it: a hefty $10.3-billion deficit despite a stronger economy, a sharp increase in borrowing that swamps provincial assets, and a long, murky road back to balance by 2023-24.
Tough reviews are also streaming in from credit rating agencies and bank economists. Legge aptly captured their mood by labelling the budget a disappointment.
“It doesn’t take enough of a good step to tackling the deficit. A balanced budget is the better part of a decade away,” he told the crowd of about 250 people.
“And we have to have that meaningful conversation with Albertans as to how to close that revenue and expense gap.”
That’s a good question.
How will the province bridge the gulf between our high levels of spending, and somewhat lower levels of revenue, that have bedevilled finance ministers for almost a decade?
Since the global recession in 2008, Alberta has wracked up $23 billion in deficit spending, even before this latest budget kicks in next month.
At some point, this isn’t a one-off, it’s a structural problem that isn’t going to be wished away.
While the NDP hit a gusher of red ink this year, the government forecasts another $9.7-billion deficit next year, followed by $7.2 billion in 2019-20.
Deficits and borrowing remain sizable even as Alberta’s economy resumes growing and oil prices are expected to improve to $68 a barrel in two years’ time.
Borrowing for the province’s capital and operating plan, which sat at $20 billion in 2015-2016, is set to surge to $71 billion in 2019-2020, a number Legge notes would top anything the province has seen before.
“Not only is it the level we’re concerned about, but it’s just the magnitude and the pace of which we’re getting there,” he later told reporters.
Total debt-servicing costs, which now sit at around $1 billion, will rise to $2.3 billion in two years. If that happens, the collective debt-servicing bill will eclipse annual spending for major departments such as Seniors and Housing, Justice or Environment.
Ceci understands the concern, but said he will not deviate from the broader strategy of protecting public services and front-line jobs.
The deficit will shrink by whittling down the growth of government operational spending this year to 2.2 per cent, below the rate of inflation plus population.
Debt repayment costs, as a percentage of annual expenditures, will increase to around three per cent, “and it won’t go much higher,” he said.
“I’ve been asked over the last few days, so why didn’t we cut more?” Ceci said at one point.
“As important as it is to cut waste and reduce growth of government spending, it is critical that through this downturn we remain focused on supporting families and communities.”
There’s nothing wrong with focusing on protecting core services, but is there not a middle ground to find? Some non-core services that can be frozen or trimmed?
Is every dollar in a $55-billion budget sacrosanct?
There’s also a need to prevent another credit downgrade that will make it more expensive to borrow money needed to keep the lights on in the first place.
As CIBC pointed out in a post-budget analysis: “The possibility of a rating downgrade remains.”
RBC Economics said while the province has a “uniquely strong fiscal situation” that allows it to bear huge deficits in the short term, the budget “lacks a path back to balanced budgets, and this is disappointing.”
An analysis by BMO Capital Markets notes Alberta came into this downturn with two major advantages: the lowest provincial tax burden and net financial assets. “The former advantage has eroded significantly, and that latter has evolved into net debt that, while still low, is quickly closing in on its Western Canada peers,” it said.
Two credit rating agencies are shining a spotlight on many of the same areas.
“The key take-away for us from the budget was just the lack of meaningful progress on the deficit reduction and overall debt,” Adam Hardi, assistant vice-president with Moody’s Investor Service, said in an interview.
Another rating agency, DBRS, pointed out the province still has a relatively low debt burden, but the increase in debt is eroding Alberta’s advantage.
“Given that we’ve seen a fairly decent rebound in commodity prices … this still isn’t translating into a meaningful improvement in fiscal performance,” said DBRS vice-president Travis Shaw.
“There still is a sizable structural deficit there that has yet to be addressed.”
Ceci isn’t changing tack, saying he won’t gut government services to drive down the deficit quickly. He insists the debt is “manageable.”
And so the budget road show continues. To decidedly mixed reviews.
Chris Varcoe is a Calgary Herald columnist.