Kenney’s budget says an Alberta rebound is coming, as government spending keeps shrinking
|National Post 27 Feb 2020 at 20:27|
EDMONTON — The Alberta government is expecting an economic rebound in coming years, it said in releasing its budget on Thursday, predicting that the upswing for the beleaguered province will get unemployed Albertans back to work and help stabilize the province’s finances. At the same time, the government made it clear that it does not see more government spending as a way to help boost the economy and instead will continue to shrink public expenditures.
“Government’s role is to provide a business environment that is nimble, predictable and one where there’s a high correlation between effort, risk and reward,” said Finance Minister Travis Toews in his budget speech to the legislature.
It was the government’s second budget in four months. Its economic recovery plan, and the plan to get the finances back to balance, include a combination of increasing taxes and a reduction in government spending and anticipated improvements in the economic climate to bring government spending under control and spur job creation.
We need to manage what we can manage well
Speaking to reporters in advance of the budget’s release, Toews repeatedly warned about the possibility of unforeseen economic volatility due to unforeseen events, and was quick to moderate expectations, hinting that further cuts could be necessary, depending what happens next.
“We are not predicting a boom time in the next two years,” Toews cautioned.
Premier Jason Kenney told National Post earlier this week that the budget would show it’s possible to balance “ambition and prudence,” a way to return to the Ralph Klein-Jean Chrétien consensus across the country on reducing spending to bring public finances into line, which he says in recent years, “has evaporated.”
“Governments just started to get gun shy; it’s tough, it’s not easy to say no,” Kenney said. “I think a lot of political leaders just lost their spine in the last decade across this country.”
The budget increases provincial property taxes by 3.1 per cent. That, on top of an unannounced increase in income tax revenues in the last budget created by deindexing tax rates from inflation, brought more criticism Thursday from the Canadian Taxpayers Federation. “Premier Kenney promised taxpayers that he would balance the budget without raising taxes, but last year he bent that promise with the bracket creep income tax hike and this year he’s breaking that promise by hiking provincial property taxes,” said Franco Terrazzano, the group’s Alberta director.
The government’s budget is nevertheless an optimistic document, projecting a return to pre-recession economics, by some indicators: Provincial GDP is projected to grow in 2020 by 2.5 per cent, and overtake pre-recession figures, driven by an increase of 170,000 barrels per day in oil production and $1.5 billion in new oil and gas investment, totalling roughly $27 billion.
It also projects business investment outside of oil and gas to exceed pre-recession figures, projecting a further $1.5 billion in investment spending in 2020, for a total just shy of $32 billion.
Still, even if those figures hold steady as more oilsands projects come online in the years to follow, and exports accelerate as pipeline capacity improves, business investment spending will still be only 70 per cent of pre-recession levels by 2023 and oil and gas investment will only be at 50 per cent of pre-recession levels, the budget says.
And, Toews said that the economy remains at the whim of global markets and the coronavirus outbreak. “We need to manage what we can manage well,” Toews said.
All total, the budget, titled “A Blueprint for Jobs,” is projecting a rebound that will see the unemployment rate decrease to 6.7 per cent in 2020 from 6.9 per cent at the end of 2019. It is expected to sink to 5.1 per cent by 2023, which is more optimistic than what many private sector analysts are expecting.
And, while the government will, by 2023, have seen revenues reduced by $2.4 billion from an escalating corporate tax cut first implemented last year, the budget projects the lower tax rate will bring in $4 billion in capital investment per year by 2023, and will contribute to GDP growth by less than half a percentage point between 2020 and 2023. The previous NDP government had raised the provincial corporate tax rate from 10 to 12 per cent in 2015, eliminating Alberta’s status as having the lowest rate in the country. The United Conservative government cut it back from 12 per cent to 11 per cent in July 2019, and to 10 per cent this past January, with plans to shrink it to 8 per cent by 2022.
The Business Council of Alberta applauded the budget Thursday for its focus on economic growth. “It shows a government looking to advance the economy, but with very few new programs or spending,” said Mike Holden, vice president of policy and chief economist at the council. “Effectively, this is a ‘do more with less’ budget, and that isn’t a bad thing.”
In another of its continuing departures from the previous NDP government, which deployed double-digit spending increases in the name of helping Alberta weather the downturn that began in 2014, the second United Conservative budget remains set on reducing spending. The document makes repeated callbacks to last year’s government-commissioned MacKinnon Report, which found that Alberta’s spending was out of step with comparable provinces, and without better outcomes to show for it. The point of the budget, Toews told the legislature, is to deliver “more modern, cost effective and sustainable” public services.
I think a lot of political leaders just lost their spine in the last decade across this country
The cuts, coming to just shy of three per cent in total spending reductions over the next few years, are projected to put the province en route to returning to balance by 2022-2023, when the government then plans to move on to tackling Alberta’s debt, expected then to hit $88 billion.
The government projects roughly 1,400 jobs to be eliminated across the public service and government agencies. Currently, the public sector makes up $26.7 billion, or nearly half of all government spending.
This budget accounts for $56 billion in spending, reduced from $58.5 billion in 2019, and chalks up a deficit of $6 billion in 2020. The government predicts growth in revenue, from about $50 billion in 2020-21 to $58 billion by 2023, as a function of increased income tax revenues, bitumen royalties and federal transfers. The government is also banking on an increase in the oil price from an average of US$58 in 2020-21 to US$63 by 2022-23, and on new pipelines coming online to help lessen the price discount for Alberta oil exports. University of Calgary economist Trevor Tombe criticized that projection as being “unreasonably optimistic” given market conditions and projections. “The government avoided having to make any new difficult fiscal choices in Budget 2020 precisely because they papered over what’s clearly a massive revenue challenge for the government,” Tombe said.
The budget also brings in a new tax on e-cigarettes or vaping products, both the devices and juices, of 20 per cent, which is expected to bring in $4 million in 2020-21. Expanding a provincial tourism levy to rental services, such as Airbnb, is project to bring an additional $3 million in revenue in 2020-21.
Rachel Notley, the leader of the opposition New Democrats, said the budget’s economic predictions are based upon “fictional growth and oil price projections that are wildly out of step with private sector forecasts.”
“(The budget) doesn’t make life better for Albertans,” said Notley. “It rests on a make believe-framework of economic projections that most people know are simply not true.”
A government spokesperson told reporters that the government is confident in its forecasts and stands by its projections.
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