Budget 2022: To Balance, or Not to Balance
When the United Conservative Party tabled its first budget as government in October 2019, the state of Alberta’s finances was framed as being severely strained, but not unfixable. Then, the provincial government projected that it would be able to erase the deficit by the 2022-23 fiscal year while total debt would rise to around $114.2 billion.
The last pre-pandemic budget was tabled in February 2020. Just four short months after their maiden fiscal plan, the projections were changed. While the projection for balance was maintained, the government had estimated that it could do so while reducing the projected debt to $107.4 billion.
A few short weeks after Budget 2020 was tabled, the world changed. Of course, no fault can be placed on the provincial government for a pandemic that, frankly, impacted every jurisdiction’s fiscal picture in a titanic way. Nevertheless, it is still the responsibility of the government of the day to deal with all the relevant implications.
For a long time after the COVID-19 global outbreak, talks of returning to a balanced budget did not exist, except to say that the promise of balancing the budget before the next provincial election would be impossible. Premier Jason Kenney shared the news before Budget 2021, saying, “the reality is, with what we’ve been handed by COVID, we cannot realistically balance the budget in the next two years.”
Not only were we hit with significant damage to trade and tax revenue, the oil and gas sector was dealt a devastating blow. Albertans will not soon forget when a barrel of crude oil was selling for negative dollars due to record low demand as travel declined sharply. There was also quite a bit of drama and speculation surrounding OPEC+ at the same time. This, combined with the economic impacts of an ongoing recession and pandemic restrictions, contributed to what the province frequently referred to as a triple-black-swan event.
Thankfully, Alberta’s economic future has started to look a whole lot brighter over the last year. Although most of our regions have seen slight slippages in January’s labour force statistics (versus December 2021), the entire province has seen a nice year-over-year improvement of 3.6%. According to the same report, it is also estimated that there were around 117,000 more people employed in the province than we saw in January 2021.
Of course, one cannot overlook the role that a revitalized energy sector has played in the province’s economic recovery. At the time of writing, West Texas Intermediate (WTI) is trading for around $90/bbl which is quickly approaching the selling highs we saw in 2014 and is showing no real sign of crashing anytime soon. As a result, oil and gas companies are seeing an influx in revenue in a way we have not experienced in a long, long time. In turn, this means that the province’s bottom line will improve significantly due to surging royalty revenues from the energy sector.
On Friday afternoon, Premier Jason Kenney released a video on his social media that gave Albertans a small glimpse into what can be expected from Budget 2022. The key themes identified by the Premier were:
· Building health care capacity
· Doubling down on Alberta’s Recovery Plan
· Sticking to the UCP fiscal plan
Health Care Capacity
While the last two years of pandemic have created a polarizing political climate across the province, one thing that most across the ideological spectrum can agree on is that Alberta needs to beef up our ability to respond to future COVID-19 (and other unknown) crises in the future. In the fourth wave, Alberta narrowly avoided implementing the Critical Care Triage Protocol. During Omicron, we have seen record hospital admissions and some facilities reach critical capacity.
However, one thing that does vary across the spectrum is how we accomplish the goal of improved health care capacity. For the United Conservatives, their strategy has consistently been to find ways to manage spikes in health care demand and impose restrictions as a last resort. Recent statements from the Premier seem to suggest that is not about to change.
“We’ve got to learn to live safely with COVID-19 without the need for damaging restrictions that limit our personal freedoms and hurt our economy.”
Shortly after the pandemic began, the EY review of Alberta Health Services provided a number of recommendations for how to improve health care inefficiencies in a fiscally prudent way. The province committed to not cutting health care spending during the 2019 election, so we will either see a shuffling of dollars around the ministry, new funding announcements (increased spending), or both.
The province has frequently called on the federal government to increase the amount of money it receives in the form of health transfers. In 2022-23, we will be receiving $5.25 billion from Ottawa. Based on the request of multiple premiers in September, Alberta is hoping to receive 22 to 35 per cent more – an amount that the province likely will be unable to contribute itself.
Alberta’s Recovery Plan
Released in the summer of 2020, Alberta’s Recovery Plan is the UCP’s answer to the economic downturn. The massive plan was designed to touch all aspects of the economy from diversification and agriculture to post-secondary training and hydrogen development. Based on the Premier’s comments, it does not sound like the province has any desire to change course.
“That plan is working, and this budget will double down on that with big investments in employment and skills training.”
The province has not been shy about it’s support of young Albertans pursuing a trades education, so it seems like the province will continue down the road paved by Alberta 2030 for things like on-the-job training and apprenticeships.
It is likely that we will hear details about the third intake of the Alberta Jobs Now program. This program gives employers offset funding to help with the cost of hiring and training staff for positions in the workforce. The last intake ended on December 17th.
Sticking to the Plan
This section of Premier Kenney’s pretense was left intentionally vague; however, it did speak volumes about speculation we have been hearing for the last number of weeks. Some economists have suggested that the rising value of crude oil along with a more free-moving economy could lead to an earlier-than-expected balanced budget by the UCP. With that being said, the Premier’s words seem to paint a different picture of the future.
“I’m proud that we’ve held the line on spending for the last few years and will continue to show discipline to put us on a path to balancing the budget.”
Put another way, the plan this year is to continue to table a budget with minimal increases in spending with no balance in place for 2022-23. While it seems very unlikely we will have a balanced budget this year, what seems more than likely is we will finally see a surplus again sometime within the lifespan of this new fiscal plan. It also sets up this UCP Government for the opportunity to table a politically advantageous budget in 2023 which comes three short months before the general election.
Don’t forget to register for our Budget 2022 analysis webinar on Friday, February 25 at Noon. You can purchase tickets at https://www.albertacounsel.com/events.