Alberta’s “Oil is Back” Budget

Alberta’s Legislative Assembly reconvened for its spring session with a Speech from the Throne setting out the government’s priorities for 2022.  Alberta’s Budget puts ‘meat on the bones’ of the Throne Speech with Finance Minister Travis Toews tabling a balanced budget for 2022-23, the first for Alberta in eight years.  Minister Toews has also forecasted balanced budgets for each of the next three years, despite running significant recent deficits.

What Does It Mean Politically?

Premier Jason Kenney has no doubt faced difficult headwinds over the course of the last two years.  He has been faced with a UCP Caucus of whom many opposed greater lockdowns during the pandemic and have accused him of not being true to small-c conservative principles.  This has been coupled with a feisty NDP Opposition headed by former Premier Rachel Notley, who has given no political quarter and is one of the most effective opposition leaders in Canada.  Alberta also goes to the polls in the spring of 2023.

Kenney faced a great deal of internal strife this past year, including an aborted attempt to force him out via an internal revolt.  He was able to tamp down talk of internal rebellion by promising an early leadership review to be held on April 9, 2022.

As a result, the Alberta budget will allow Kenney to claim adherence to conservative principles by delivering a balanced budget (and a course for future balanced budgets), while delivering on other priorities including infrastructure and economic diversification.

There is no doubt that improved energy prices have played a key role in Alberta’s economic turnaround.  Yet Premier Kenney and Finance Minister Toews have also asserted that strong financial management, especially during the last year, have played an equal role in Alberta’s path to balance.

The coming few months will remain challenging for Premier Kenney.  He has to survive a leadership vote and prepare for a re-election campaign, all while facing a “raucous UCP Caucus” and an electorate that has not re-elected a Premier since Ralph Klein in 2004.  Consider the budget the first salvo on the road to Alberta’s 2023 election.

Alberta’s Budget in Brief

The budget’s key themes include:

• health care capacity expansion
• job creation
• education, and
• ongoing efforts to improve economic diversification, investment attraction, and economic growth.

In keeping with the theme of attracting talent and investment, Budget 2022 highlighted that Alberta has the highest average weekly earnings among provinces, among the lowest home prices and rents among large Canadian urban centres, and the lowest overall taxes in Canada – including the most competitive business tax rate in Canada and a lower combined federal-provincial tax rate than the combined federal-state rate of many U.S. states.

Alberta had previously set out three fiscal anchors, including bringing operational spending in line with the other provinces – which they have done, keeping Alberta’s net debt-to-GDP ratio below 30% (estimated to be 18.4%), and providing a balanced budget – which they now say they will accomplish this fiscal year. The province has also recovered all the jobs lost during the pandemic, and added an additional 33,000 jobs as of January, with expectations that employment will grow by a further four percent in 2022.

Energy Revenues on the Rise

Given recent buoyant oil and gas prices, Alberta’s economic recovery from the global pandemic and the oil price crisis has been robust. Real gross domestic product (GDP) grew an estimated 5.8% in 2021, with nearly all sectors of the economy rebounding, and growth is forecast at a solid 5.4% for 2022.

The province predicts revenue of $61.7 billion in 2021-22, an improvement of over $18 billion from what was budgeted, and as a result, Alberta narrowly missed a balanced budget last year, mostly due to unbudgeted costs incurred during the year for COVID Recovery and other contingencies.

The budget also assumes WTI Oil prices (US$/bbl) of $74 in 2021/22 and $70 in 2022-23, and natural gas prices (Cdn$/GJ) of $3.4 in 2021-22 and $3.2 for 2022-23.  These forecasts help pave the way to the government’s calculations for a small surplus of $.5B for 2022-23.

Minister Toews also highlighted that the province collected roughly $400 million more in annual corporate tax revenue at an 8% corporate tax rate, than in prior years with a 12% corporate tax rate. Increased corporate tax revenue may be due to rising oil and gas prices, which moved many previously unprofitable and untaxable resource companies back into the taxable column.

Alberta has also not been immune to challenges around energy affordability, especially for natural gas.  The budget implements a consumer price protection mechanism which triggers a rebate to Albertans if natural gas prices exceed $6.50 a gigajoule, no doubt designed to be a “consumer first” initiative.

Health Care

In his speech, Finance Minister Toews recognized that the COVID-19 pandemic exacerbated the impacts of the preceding recession, with costs for the province’s COVID-19 response expected to exceed $10 billion by the end of fiscal year 2021-22.

The government has added $600 million to Health’s operating expense budget in 2022-23, growing to $1.8 billion in 2024-25 for new Intensive Care Unit (ICU) beds, measures to address the surgical backlog created by COVID-19, reinvesting in Emergency Medical Services, as well as measures aimed at reducing wait times and improving health outcomes, as well as additional funds for Community Care, Continuing Care, and Home Care Programs.

Education and Skills Training

The budget pledges dollars to expand charter schools and the collegiate model, with particular attention on expanding opportunities in science, technology, engineering, mathematics, and the trades. It also includes $23 million for Advanced Education through the Alberta at Work initiative to support career advancement, including $15 million in grants and bursaries for low-income students studying in qualified high-demand programs and $8 million to expand reskilling and upskilling opportunities through new micro-credential based course offerings.

The budget also includes $264 million for targeted supports to build job skills, enrolment expansion in the areas of technology, agriculture, financial services, and aviation, millions to expand the veterinary school at the University of Calgary, $30 million over three years to train more commercial drivers, $30 million for apprenticeship expansion programs, and $5 million to increase training opportunities for Indigenous people.  Skills training was a hallmark of Premier Jason Kenney’s priorities when he was Minister of Employment and Social Development in the Harper government, so it should be no surprise that we see similar commitments at the provincial level.

Infrastructure and Diversification

For virtually all provincial governments, spending on capital plans and infrastructure not only deliver new projects and wins for the government, but also employment.  The budget’s capital plan includes $5.8 billion for municipal infrastructure; $3.2 billion for capital maintenance and renewal; $2.2 billion for health facilities; $1.8 billion for roads and bridges; and $1.5 billion for schools.

During the pandemic, the Kenney government has also tried to focus on economic diversification.  The budget reflects this priority with commitments for $88 million to enhance Alberta’s Investment and Growth Strategy, including $73 million over three years for the Alberta Technology and Innovation Strategy to develop the province as a tech and innovation hub.  The government also intends to “sell Alberta” across Canada and around the world by committing $15 million to promote the benefits of living, working, and investing in Alberta.