Last week, Travis Toews, Alberta’s minister of finance, released the provincial 2021–2022 budget. This is the UCP government’s second full-year fiscal budget.
It’s not looking too good for the party that touted itself as fiscally responsible.
In 2019, 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.
Well, I have some bad news.
A heads up first though: the budget is 201 pages long. I’m not reporting on the entire thing. I’m just highlighting some more notable parts. But I will discuss some components in more detail over the next few weeks.
Toews projects that by the end of March 2022, the UCP government will have bumped the provincial debt to $115.8 billion. That’s the first time in decades—if not ever—that Alberta’s debt has ever passed $100 billion.
Final numbers for the provincial debt as of the 2020–2021 budget year have yet to come in, but the province is forecasting $98.3 billion by the end of this month.
When they announced the 2020–2021 budget last February, the government predicted that the taxpayer-supported debt for 2020-2021 would be $76.9 billion. That was increased to $99.6 billion in the August update, then slightly decreased t0 $97.4 billion in November. So for the current budget year, we’re going to end up with $20 billion more debt than we were originally told a year ago.
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 3 years in power, the UCP will have increased the debt by 85% over what the NDP had built it to when they left office.
Now, sure, much of the extra $23.3 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 in autumn of 2019, the UCP had already increased the debt by nearly $12 billion in just their first year.
On that note, according to last year’s budget, the taxpayer-supported debt in 2022–23, the year leading up to the next election, was supposed to be $93.3 billion, up from $62.7 billion for the NDP’s last budget. As of last week, the new budget places the 2022–23 debt at $128.1 billion.
Remember, that’s just taxpayer-supported debt. If you include “self-supporting lending organization / activity debt”, it’s actually $146 billion.
The cost to service the provincial debt over the next year will be $2.323 billion in taxpayer support. That’s higher than the $1.963 billion forecasted for the current budget year. The UCP government forecasts this amount to grow to $2.647 billion by the next election.
We’ll be spending more in paying back the debt than we’ll be spending on operating expenses for all but just 4 of the government ministries (advanced education, community and social services, education, and health).
During the 2018–2019 budget year, the NDP’s final full fiscal year, taxpayer-supported debt servicing costs were at $1.527 billion.
Furthermore, the net debt to GDP ratio for the 2021–2022 budget year is estimated at 24.5%, which is more than the 20.3% they’re forecasting for the current year and significantly higher than the 12.1% the UCP had originally budgeted last February. And it’s going to keep rising: to 26.1% in 2022–2023 and 26.6% in 2023–2024.
The net debt to GDP ratio was only 8.0% under the NDP’s last budget.
Over this next year alone, we could have a $18.2 billion deficit. That’s less than the $20.2 billion they’re forecasting for the current fiscal year, which ends this month. Keep in mind, however, that the government predicted in last February that the deficit for 2020–2021 would be only $6.8 billion. So, while next year’s deficit may end up lower than this year’s, it’ll still be nearly 3 times what this year’s was supposed to be.
The UCP is forecasting deficits for every one of their 4 years in power this term. In fact, every one of those deficits is expected to come in higher that the highest deficit under the NDP:
|2018–2019||$6.71 billion||$31.95 billion|
|2022–2023||$10.98 billion||$61.54 billion|
While revenue will be up next year by $1.4 billion over this year’s forecast, it’s still $6.3 billion less than what was originally forecasted last year, $2.5 billion less than what the UCP brought in in their first year, and $5.90 billion less than the NDP brought in during their final year.
Also playing a role in the new deficit is $1.8 billion more in expenses. And that’s even before factoring extra spending for COVID-19 response.
Revenue is down. It’s down as of last year’s initial forecast, down from actual revenue in 2019–2020, and down from actual revenue in 2018–2019.
This isn’t surprising given that government has, for years, depended so much on oil revenue to balance a budget that otherwise is funded by low tax rates, particularly when you cut corporate tax rates by a third. And when oil prices are low, businesses are shut down because of the pandemic, and we have double-digit unemployment, it’s going to affect how much the provincial government collects in resource revenue, corporate tax revenue, and personal tax revenue.
Here’s how the revenue from the new budget breaks down:
|Premiums, fees, licences||$3.911||$3.929||$3.960||$4.133||$4.227||$4.339|
There are a few takeaways from this table.
First, every revenue source except two are forecasted to be higher by next March than what the UCP are predicted for this march. The two revenue source expected to decrease are transfer payments from the federal Liberal government and investment income.
However, nearly all revenue forecasts are lower than they were in the UCP’s first year. Federal transfers, business enterprises, and premiums and fees should still be higher than 2019.
Federal transfers and premium and fees—although lower than they were last year—are still higher than they were under the NDP’s last budget. Which Ottawa will be still sending us more money than they did under the NDP and premiums and fees will be higher under the UCP than they were under the NDP.
Here’s a breakdown of revenue by percentage of total revenue, sorted by proportion:
|Premiums, fees, licences||7.88%||8.50%||9.36%||9.46%||8.91%||8.53%|
Even though federal transfers are forecasted to decrease over the next 3 years, they will still make up between 20% and 23% of all provincial revenue, making it still the second largest source of revenue for the Alberta government.
Income tax and money from Ottawa combined will make up about 2 out of every 3 revenue dollars.
Second, despite all the hype around oil and gas bring in revenue, non-renewable resource revenues will come in at only $1.374 billion. This is the second lowest level in over 40 years and will make up only 3.14% of all government revenue. Only this year has been lower. And next year‘s forecast is lower than what the UCP had originally forecasted for this year.
Third, despite dropping by $4.2 billion, income tax still will make up over 2/5 of government revenue in the 2020–2021 fiscal year. And 86% of that will be personal income tax. Which makes sense, since the UCP cut the corporate tax rate by a third.
Here’s how it breaks down:
|Personal income tax||$11.647|
|Corporate income tax||$1.891|
Personal income tax will be slightly higher than this year’s forecast (by about $711 million). Corporate income tax will be about $351 million lower. Another way to look at it is that corporate tax revenue will be 15.7% lower, and personal tax revenue will be 6.5% higher.
In the figures the UCP had forecasted in the spring, 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 over 6 times as much provincial revenue as corporate income tax over the next year.
The pandemic 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 July, but they changed their mind last summer and doubled the tax cut. And if the tax rate is lower, that means revenue generated from that tax rate will also be lower.
For example, the Job Creation Tax Cut eliminated $200–300 million from corporate tax revenue this past year, 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 2021–2022 fiscal year will be $62 billion. The vast majority of that will be operating expenses, with only $1.1 billion going to the COVID-19/recovery plan, compared to $5.8 billion this past year.
The government will be increasing the operating (non-pandemic) expense budget by $1 billion. Here are the operating expenses for each ministry, broken down by year, going back to 2018–2019 and into 2023–2024.
|Agriculture & Forestry||$967||$868||$860||$839||$837||$818|
|Community & Social Services||$3,634||$3,965||$3,797||$3,886||$3,952||$3,979|
|Culture, Multiculturalism & Status of Women||$236||$205||$159||$161||$146||$146|
|Environment & Parks||$574||$558||$594||$449||$451||$447|
|Jobs, Economy & Innovation||$349||$282||$293||$308||$316||$316|
|Labour & Immigration||$208||$195||$203||$200||$184||$184|
|Seniors & Housing||$630||$634||$630||$673||$699||$702|
That’s a lot of data. Let’s break this down a bit more. Let’s compare this budget’s spending to the last budget, the UCP’s first budget, and the NDP’s last budget.
|Last year NDP||1st year UCP||Last year|
|Agriculture & Forestry||-$128||-$29||-$21|
|Community & Social Services||$252||-$79||$89|
|Culture, Multiculturalism & Status of Women||-$75||-$44||$2|
|Environment & Parks||-$125||-$109||-$145|
|Jobs, Economy & Innovation||-$41||$26||$15|
|Labour & Immigration||-$8||$5||-$3|
|Seniors & Housing||$43||$39||$43|
Compared to last year, there are 10 ministries with higher forecasted operating expenses and 8 with lower forecasts. However, if we compare the new budget to the NDP’s last budget, only the following 5 ministries are getting more money:
- Children’s Services ($225 million)
- Community & Social Services ($252 million)
- Education ($25 million)
- Health ($1.009 billion)
- Seniors & Housing ($43 million)
That health increase sounds like a lot, but it’s only a 4.9% increase, and that’s spread out over 3 years. This means an average of 1.6% increases each one of those years.
Population growth averaged 1.28% each year between the end of 2018 and the end of 2020. If we see the same rate this new budget year, then population will have increased by 3.84%, eating up nearly all of the 4.9% increase.
The annual inflation averaged 1.74% between 2018 and 2020. If we assume similar growth this year, then it’ll be 5.22% growth. If you combine that with 3.84% population growth, it becomes clear that a 4.9% increase in health spending doesn’t even cover population and inflation growth, let alone any operational deficits that already exist.
If the UCP had been keeping up with population and inflation growth, we’d be seeing them spending $22.3 billion over the next year. By failing to keep up with population and inflation growth, the UCP are effectively cutting health spending by nearly $1 billion in 2021–2022.
The largest cuts, compared to the 2020–2021 budget year, are as follows:
- Environment & Parks (-$145 million)
- Advanced Education (-$75 million)
- Justice (-$64 million)
- Infrastructure (-$42 million)
If we compare them to 2018–2019 spending, the largest cuts are even worse:
- Finance (-$550 million)
- Advanced Education (-$348 million)
- Agriculture & Forestry (-$128 million)
- Environment & Parks (-$125 million)
Since human resources make up such a large portion of operational expenses, I thought I’d outline some of the proposed changes to the public sector workforce over the next budget year.
First, the government plans to add 1,873 full-time equivalent positions in 2021–2022. It’s not as impressive as it sounds. I mean, 208,601 public sector positions next year certainly seems larger than the 206,728 jobs from last year. However, at the end of the NDP’s term, Alberta’s public sector was employing 210,407 workers. Next year’s increase is barely half of the workforce the UCP cut over the last two years.
There are only 10 areas in the public sector that will see job increases, and most of them will be with Alberta Health Services:
- Alberta Health Services (2,940)
- Environment and Parks ministry (68)
- Alberta Investment Management Corporation (49)
- Energy ministry (19)
- Alberta Pensions Services Corporation (19)
- Municipal Affairs ministry (14)
- Labour and Immigration ministry (10)
- Alberta Indigenous Opportunities Corporation (6)
- Executive Council (2)
- Alberta Enterprise Corporation (2)
Wait. How does Jason Nixon, the environment minister, plan to fill 68 full-time equivalent positions when he’s cutting his budget by $145 million this year?
Those AHS might be related specifically to the pandemic response, including the vaccination rollout expected later this year. So, it’ll be interesting to see what next year’s budget holds for these positions.
I do find it interesting that the Executive Council plans to hire 2 more workers. The Executive Council supports the premier’s office, as well as the various ministries, so these will probably be political staffer positions.
Here are the 10 areas that will see the largest job cuts:
- Post-secondary institutions (-750)
- Infrastructure ministry (-72)
- Justice ministry (-71)
- Agriculture and Forestry ministry (-70)
- Transportation ministry (-58)
- Service Alberta (-44)
- Energy Efficiency Alberta (-27)
- Indigenous Relations ministry (-26)
- Agriculture Financial Services Corporation (-21)
- Community and Social Services (-21)
It’s odd that Community and Social Services is losing 21 workers given that they’re increasing operational spending by nearly $90 million.
This year, the UCP plans to borrow slightly more than that: $24 billion over the next year. Over the last two years, we’ve already borrowed $30 billion. They plan to borrow an additional $18.7 billion in the final year of this term and $12.9 billion the following year, if they are re-elected.
Of that $28.465 billion, only $5.045 billion appears to be going to capital projects. The government also plans to use $12.490 billion of it to finance the fiscal plan.
So, in summary:
$43.7 billion in revenue
-$61.9 billion in expenses
$18.2 billion deficit
In their 2019 election platform, the UCP promised to “maintain operating spending at current levels as part of a realistic plan to balance the budget by 2022/23 without compromising core services”.
In the same platform, they anticipated $54.72 billion in revenue and $57.96 billion in expenses for this next year, for a $3.94 billion deficit. Instead, they got $43.7 billion in revenue, $61.9 billion in expenses, and a $18.2 billion deficit.
Their goal to see a $714 million surplus by the next provincial election, using what they called “cautious, lower revenue projections provided by Stokes Economics”, an economics consulting firm, seems to be drifting further and further away.
I guess that’s one election promise that probably won’t be fulfilled.