Earlier this week, Travis Toews, Alberta’s minister of finance, released the first quarter fiscal report for the UCP government’s first full-year fiscal budget.
It’s not looking too good for the party that touted itself as fiscally responsible.
Last year, the party promised to give Alberta a budget surplus of $714 million by the next election year and to increase the total deficit for all 4 years of their first term to only $86 billion.
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Well, I have some bad news.
A heads up first though: the budget is 18 pages long. I’m not reporting on the entire thing. I’m just highlighting some more notable parts.
Toews projects that by the end of March 2021, the UCP government will have bumped the provincial debt to $99.6 billion, just barely shy of $100 billion.
The provincial debt at the end of the 2019–2020 fiscal year was $74.1 billion, which is higher than the $67.9 billion they had forecasted. The total amount of taxpayer-supported debt had reached $62.7 billion at the end of the NDP’s term.
So, after two years in power, the UCP will have increased the debt by 59% over what the NDP had built it to when they left office.
Now, sure, much of the extra $25.5 billion in debt that we’ll have by the end of this fiscal year will be a direct result of the COVID-19 pandemic and the drop in oil prices. However, we must keep in mind that the debt was rising long before the pandemic came along.
Even after their first round of cuts last autumn, the UCP had already increased the debt by nearly $12 billion in just their first year.
Over this next year alone, we could have a $24.2 billion deficit. That’s nearly 70% higher than they had forecasted back in March, during the start of the pandemic. And it’ll increase the provincial debt by 32%.
About half of that deficit increase is fuelled by about $11.5 billion in less revenue. Also playing a role is $5.3 billion more in expenses (including an increase of $1.4 billion more in capital spending) than previously budgeted.
Okay, so, I mentioned loss of revenue. Here’s how that breaks down:
|Premiums, fees, licences||$4,194||$3,869|
There are a few takeaways from this table.
First, every revenue source except one will probably be lower next March than the UCP had predicted back in this past March. The only revenue source to increase is transfer payments from the federal Liberal government. In fact, it is up by nearly $850 million. Most of that was in an “other” category, but there was also $26 million for agricultural support and $34 million for infrastructure support.
Even if with the bump in funding from the federal government, federal transfers still weren’t the largest single source of revenue for the provincial government: that was income tax.
Second, despite all the hype around oil and gas bring in revenue, non-renewable resource revenues will come in at only $1.2 billion. This is the lowest level in over 40 years and will make up only 3.2% of all government revenue. Even before the adjustment after the first quarter, the UCP had budgeted only 10.2% of its revenue coming from resource royalties.
And even getting to $1.2 billion, according to the first quarter fiscal update, West Texas Intermediate must come in at US$58 a barrel. In the first quarter of 2020–2021, it was $22.40 short. Just yesterday, it closed at $42.93, and we’re nearly halfway through the year.
Third, despite dropping by $4.25 billion, income tax still will make up a third of government revenue in the 2020–2021 fiscal year. And most of that will be personal income tax.
Here’s how it breaks down:
|Personal income tax||$12,566||$10,712|
|Corporate income tax||$4,539||$2,146|
Both personal and corporate income tax will be lower this year than forecasted, but personal income tax will take a smaller hit. Corporate income tax will be about $2.4 billion lower, while personal income tax will drop about $1.9 billion. Another way to look at it is that corporate tax will be 53% lower, and personal tax will be only 15% lower.
In the figures the UCP had forecasted, personal income tax revenue was supposed to be 2.8 times higher than corporate income tax revenue. With the adjusted figures, personal income tax will make up 5 times as much provincial revenue as corporate income tax over the next year.
The pandemic and low oil prices will certainly account for much of the decrease in corporate income tax revenue. After all, if you have to close your business, or your business is related to oil, then you’ll have less profit, and profit is where taxes come from.
There’s an additional cause for the drop. The UCP had planned to decrease the corporate tax rate from 10% to 9% last month, but they changed their mind last month and doubled the tax cut. And if the tax rate is lower than planned, that means revenue generated from that tax rate will also be lower.
The Job Creation Tax Cut eliminated $200–300 million from corporate tax revenue, or about 14% of the loss in corporate tax revenue. Had they kept the tax rate at 9%, they could’ve reduced up to $300 million. And if they had left the tax rate at the 12% it was when they took office, they could’ve reduced the deficit by even more.
The UCP government predicts that expenses for the 2020–2021 fiscal year will be nearly $51 billion, about $2.6 billion more than they had originally budgeted. The vast majority of that has been or will be spent on COVID-19 initiatives.
Here’s how it breaks down by ministry:
|Community & Social Services||$60||–||$48|
|Econ. Dev., Trade & Tourism||–||–||$316|
|Environment & Parks||–||–||$367|
|Labour & Immigration||$114||–||$273|
The UCP government originally planned to spend only $500 million on their COVID-19 response during this fiscal year. Instead, they estimate having to spend 600% more than that. Combined with how much they spent at the end of the last fiscal year, they expect a total of $3.2 billion to go toward COVID-19 initiatives.
The government will be increasing the operating (non-pandemic) expense budget by only $87 million, with actual increases being seen in only the advanced education ($179 million), health ($301 million), and transportation ($3 million) ministries.
All other ministries will see reduced expenses—a total of $438 million in budget cuts—with the largest ones being in Treasury Board and finance ($152 million), education ($132 million), and Indigenous relations ($99 million).
At the end of the last fiscal year, the provincial government had borrowed $15.04 billion. Less than 10% of it went to provincial corporations or government business enterprises. Most of it when to the government.
This year, the UCP had planned to borrow slightly more than that: $15.791 billion. They’ve since increased that by 81% to $28.553 billion in borrowing. Of that $28.553 billion, only $5.522 appears to be going to capital projects. Presumably, the other $23 billion in loans will be used to fund operating expenses.
Oh, and keep in mind that the $28.553 in borrowing is a net borrowing amount. The UCP government plans to take on nearly $30 billion in new debt this year, but $1.5 billion of that will be offset by changes in the money market.
So, to sum up:
$38.4 billion in revenue
-$62.6 billion in expenses
$24.2 billion deficit
Funny enough, that’s almost how much Toews authorized himself to borrow back in April.