Budget 2023 – Continued Surplus Built on Strong Resource Royalties

Budget 2023 represents what will be the final fiscal plan the Government of Alberta will release before the provincial election on May 29, 2023. Titled Securing Alberta’s Future, the fiscal plan not only provides a path forward in the immediate future but puts in the structure that future economic policy will be based on going forward. Overall, this is a “something for everyone” budget that including new investment, a balanced budget, and significant debt repayment.

Over the coming weeks, MLAs will sit in committee to go through the main estimates proves for each ministry. This process gives both the government and opposition an opportunity to examine budget lines more closely in order to help Albertans better understand what this budget proposes to do. We strongly encourage you to tune into the meetings that impact your organization by visiting https://www.assembly.ab.ca/assembly-business/committees.

Deficit and Debt

As previously indicated, our province remains in the black for the life of Budget 2023. Alberta’s surplus this year is forecasted to drop to $10.4 billion (down from the projected $12.3 billion in the last fiscal update). This surplus will continue in the next three years despite significant drop offs to $2.4 billion in 2023-24, $2.0 billion in 2024-25, and $1.4 billion in 2025-26.

Taxpayer supported debt is also forecasted to drop over the next three years. For 2023-24, the total is expected to be $78.3 (a decrease from the $94.7 billion budgeted in 2022-23). It is projected to remain flat in 2024-25 with a slight increase in 2025-26 to $79.7 billion. Net debt to GDP is forecast to finish this fiscal year at 10.2% which marks a reduction from the previous budget’s projections. This ratio will continue to drop to 9.7% in 2024-25 and 9.1% in 2025-26.

Real GDP is projected to increase by 2.8% this year and will remain stable for the remainder of the budget. Unemployment has increased above previous estimates, forecasted to reach 6.4% this year – not dropping significantly until 2026 when it forecast to fall to 5.7%. Alberta Consumer Price Index is also below budgeted levels, forecast to increase by only 3.3% (budgeted to be 6.4%) and will remain steady at 2.2% the next three years.

Revenue

While still strong, Alberta’s revenue is projected to fall below the budgeted forecast. Revenue is projected to drop. $5.4 billion to $70.6 billion this year with small increases in the following two years. Bitumen royalties; while below forecast, are still high at $12.5 billion next year (plus $5.8 billion from other royalties). Personal taxes earned more than forecast ($14.1 billion) while corporate taxes dropped slightly ($5.9 billion), though both are expected to increase in the following two years.

New Fiscal Framework Coming

In addition to Budget 2023, the Government of Alberta is proposing to pass legislation that would provide future governments rules for how it is to handle its finances.

It would stand on four key pillars:

·         Governments would be required to table balanced budgets (with exceptions for disaster and sharp declines in revenue)

·         Limit in-year increases to operating expenses to population growth and inflation

·         Limit in-year expense increases to a budgeted and voted on contingency (with exceptions)

·         Policies in place for surplus allocation

o   50% to dept repayment maturing that fiscal year

o   Remaining cash to a new Alberta Fund

§  Pay down debt

§  Supplemental Alberta Heritage Savings Trust Fund deposits

§  One-time initiatives not requiring permanent increases in government spending.

Alberta is no stranger to the idea of legislating balanced budgets as that has been a requirement the provincial government has had for municipalities for many years. This is also not the first time a provincial government has attempted to legislate balanced budgets for itself. Former Premier Ralph Klein enacted such legislation, only for it to be repealed down the road. There was also the Balanced Budget and Debt Retirement Act from 1990’s that attempted to implement a debt repayment schedule ending in 2009-10.

Such legislation may be difficult to enforce on future governments for a number of reasons. The biggest, of course, is the volatility of Alberta’s reliance on resource royalty revenue. With Alberta projecting a $10.3 billion surplus this year while earning $18.7 billion in bitumen royalties alone, a downturn of WTI could quickly put a government of any political stripe back in the red. Yes, the proposed framework allows for sharp declines in revenue; however, municipalities are not given similar allowances as evidenced by their advocacy during the COVID-19 pandemic.

The standard for sharp declines in revenue appears to be when “revenue declines by $1 billion or more from the prior-year third quarter (Q3) revenue forecast; or revenue is expected to decline to an amount that is below the prior-year Q3 total expense forecast.” There is also a requirement for balance to be returned within two years.

The Takeaway from Budget 2023

No matter which party is in power (at any level of government), it is critically important to remember that any budget that immediately precedes and election will be written as favourably as possible.

As remains true in Alberta’s resource-reliant economy, the volatile oil and gas market will have a significant impact on our ability to live up to this budget not only in 2023-24, but the entirety of Budget 2023. WTI is projected to drop steadily over the next three years with bases of $79.00US, $76.00US, and $73.50US/bbl. With that said, oil and gas futures are notoriously difficult to predict with any sort of accuracy.

Additionally, global markets remain volatile with the impacts of the ongoing war in Ukraine which can provide additional unpredictability, especially with Russia’s influence on the European energy markets.

As we previously indicated, this budget has something for everyone. It is a "safe” pre-election budget that the United Conservative Party will hope improves the odds of re-election. We encourage all of our readers to tune into main estimates as they happen between now and March 16th to ensure your organization has a strong understanding of how Budget 2023 will impact you.

The spring sitting is scheduled to wrap up on March 30th.