Earlier this week, Travis Toews, Alberta’s minister of finance, released the mid-year fiscal report for the UCP government’s second full-year fiscal budget.
It’s not looking too good for the party that touted itself as fiscally responsible.
While campaigning during the 2019 election, the UCP 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 36 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 2022, the UCP government will have bumped the provincial debt to $101.6 billion. That’s lower than the $105.7 billion they were predicting in the August update.
The provincial debt at the end of the 2019–2020 fiscal year was $74.1 billion and $93.04 billion at the end of the 2020–2021 fiscal year. The total amount of taxpayer-supported debt had reached $62.7 billion at the end of the NDP’s term.
So, after three years in power—assuming the forecasted debt levels don’t change—the UCP will have increased the debt by 62% over what the NDP had built it to when they left office.
Now, sure, much of the extra $38.9 billion in debt that we’ll have by the end of this fiscal year will be a direct result of the COVID-19 pandemic. 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 the autumn of 2019, the UCP had already increased the debt by nearly $12 billion in just their first year.
On that note, according to the 2019–2020 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 this week, the mid-year budget places the 2022–23 debt at $107 billion. Remember, that’s just taxpayer-supported debt. If you include “self-supporting lending organization / activity debt”, it’s actually projected to hit $124.4 billion by the next election.
The cost to service the provincial debt will be $2.319 billion in taxpayer support, for just the 2021–2022 fiscal year. That’s higher than the $2.120 billion predicted in the August update but still slightly lower than the $2.323 billion estimated this past February. The UCP government forecasts this amount to grow to $2.682 billion by the next election, up from the $2.647 billion predicted in the February budget.
We’re spending more in paying back the debt than we are spending on operating expenses for all but just 4 of the government ministries.
Over this next year alone, we could have a $5.822 billion deficit. That’s less than the $7.759 billion they predicted in August but lower than the $18.221 billion they had forecasted back in February.
About half of that deficit decrease is fuelled by an extra $14.2 billion in revenue, even though expenses unrelated to COVID-19 are projected to increase by $40 million and other expenses (COVID-19, contingency, and crude-by-rail) are set to go up by $1.8 billion.
According to the update, the province is forecasting revenue for 2021–2022 at $57.9 billion, which is $14.2 billion more than they had predicted back in February and $2.9 billion more than announced during the August update.
However, this update is temporary. For example, on page 3, the report says that over half of the increase to the forecasted revenue is from higher than expected fossil fuel revenue, but this jump won’t last long.
Risks remain elevated: pandemic impacts constrained short-term energy supply growth, and now demand is returning with unexpected strength, causing what should be a temporary spike in oil and natural gas prices.2021-22 Mid-year Fiscal Update and Economic Statement, page 3
The report also notes that revenue will drop in the follow two budget years.
Revenue is forecast to drop $2.3 billion in 2022-23, to $55.6 billion, and to $56.4 billion in 2023-24, due mainly to lower federal transfers as pandemic transfers decrease, and resource revenue and investment income, as energy prices and financial markets stabilize.2021-22 Mid-year Fiscal Update and Economic Statement, page 4
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. And when oil prices are high—Western Canada Select is 45.68 as I’m writing this and down from $68.75 a month ago—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 changes from the update breaks down:
|Budgeted||Aug forecast||Nov forecast|
|Premiums, fees, licences||$4,133||$4,456||$4,283|
There are a few takeaways from this table.
First, every revenue source except one will probably be higher next March than the UCP had predicted back in this past February. The only revenue source to decrease is “other taxes”. This includes things like education tax, fuel tax, tobacco and cannabis taxes, and a tourism levy. In fact, it is down by over $100 million over February’s forecast and $50 million compared to August’s forecast.
Even if with the bump in fossil fuel revenue of over $8 billion, these 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 bringing in revenue, fossil fuel revenue will make up only 18.8% of all government revenue.
Third, however, income tax will make up the largest portion of government revenue in the 2021–2022 fiscal year: 27.5%. And 81.8% of that will be personal income tax.
Here’s how it breaks down:
|Budget||Aug forecast||Nov forecast|
|Personal income tax||$11,647||$12,296||$13,075|
|Corporate income tax||$1,891||$2,482||$2,916|
Both personal and corporate income tax will be higher this year than forecasted. Corporate income tax will be about $1.03 billion lower, while personal income tax will rise about $1.43 billion. Another way to look at it is that corporate tax will be 54.2% higher, and personal tax will be only 12.3% lower.
In the figures the UCP had forecasted in the spring, personal income tax revenue was supposed to be 6 times higher than corporate income tax revenue. With the adjusted figures, personal income tax will make up 4.5 times as much provincial revenue as corporate income tax over the next year.
The UCP government forecasts operating (non-pandemic) expense budget to be $48.9 billion this year, up slightly from the $48.3 billion they budgeted in February.
Here are the operating expenses for each ministry, broken down by the original forecast, the August update, and this month’s update.
|2019-20 actual||2020-21 actual||Feb budget||Aug update||Nov update||Change|
|Agriculture, Forestry, Rural Ec Dev||$868||$812||$839||$855||$857||$18||$2|
|Community & Social Services||$3,965||$3,691||$3,886||$3,768||$3,745||-$141||-$23|
|Culture & Status of Women||$205||$151||$161||$157||$157||-$4||$0|
|Environment & Parks||$558||$479||$449||$534||$534||$85||$0|
|Jobs, Economy & Innovation||$282||$257||$308||$308||$307||-$1||$-1|
|Labour & Immigration||$196||$182||$200||$199||$207||$7||$8|
|Seniors & Housing||$634||$611||$673||$673||$674||$1||$1|
This month’s update not only shows $259 million more in spending than the UCP planned in February, but spending is also planned to be $407 million more than it was in the August update.
In fact, 13 of the 19 ministrie have forecasts that are higher than they were in February, and that seems like a good sign, right? Well, kind of.
With this week’s fiscal update, operational spending is up by $259 million compared to 2019–2020, which is an increase of only 0.53%. That’s not even enough to cover inflation and population growth.
Plus, some ministries are getting massive cuts compared to the 2019–2020 year.
Advanced Education, for example, will receive $408 million less this year compared to 2019–2020. Community & Social Services will receive $220 million less.
Other ministries will receive more funding this year than in 2019–2020. Health could receive $718 million (3.4%), Children’s Services $218 million (1.4%), and Education $113 million (1.4%).
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 this year, for a $3.94 billion deficit. Instead, they got $57.92 billion in revenue, $63.74 billion in expenses, and a $5.82 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.