Alberta Budget: Slight Surplus but Concern (As Always) About Energy Prices

Budgets not only lay out the fiscal course a government will take over the coming year, but they also serve as communications opportunities to set the stage about the priorities of a government.  They are also an opportunity to warn citizens about potential challenges and pitfalls.

Every government approaches the communications element of a budget in different ways.  Premier Danielle Smith’s government purchased air time a week ago on Alberta’s TV networks to “pre-empt” her own budget and also warn voters that one of her major 2023 campaign planks, a personal income tax cut, would have to be delayed.

Since then, Ministers have been rolling out good news “budget announcements” in advance of today to sweeten the pot, setting up today’s budget rollout.

What’s In the Budget?

As the Premier outlined in her address a week ago, Finance Minister Nate Horner reiterated those key points today:

• 2024 Surplus of $367 million on a $73.2 billion budget ($2.1 billion lower than forecast in the November fiscal update)
• Real GDP growth of 3.3% next year with an average of 2.7% in 2026 and 2027
• No spending cuts and increased funding for health care (4% year-over-year increase), education (again 4% increase), and social programs – claimed to be the “largest healthcare budget in (Alberta’s) history”
• $3.6 billion over three years for health capital projects
• $600 million over 3 years from the province’s TIER fund for emissions reductions and clean tech development
• A capital plan budget of $25 billion over three years for a wide range of infrastructure and other programs like the Alberta Petrochemicals Incentive Program (APIP) and the Aboriginal Business Investment Fund
• The promised provincial income tax cut from the campaign of 8% on the first $60,000 of income will be implemented “responsibly” over two years and Albertans will only see the full impact in 2027.

It’s also important to note that Alberta’s fiscal framework sets out anchors to balance the budget, limit spending increases, and use half of any available surplus cash to pay down debt.

Energy Rollercoaster Still Remains a Challenge

As successive Conservative and NDP Alberta premiers and finance ministers vow to get off the “energy rollercoaster” of volatile oil and gas prices, the fact remains that global energy prices will continue to impact the provincial bottom line for years to come.  Finance Minister Horner noted in his speech that the need to get off “booms and busts” is key, and Smith stated that in 2023, $16 billion of royalties from the energy sector were required to balance a $70 billion budget.

The budget also noted that high interest rates and population growth, coupled with housing and supportive spending provides challenges.  It forecast an energy price of $74 USD per barrel of oil for the next three years, down $5 a barrel from last year’s budget.

For years, Alberta has had the debate over higher income taxes, the imposition of a sales tax, or cuts in services.  It has also debated what to do with its “Heritage Fund,” established in the 1970s by Peter Lougheed using provincial energy royalties.  The Fund has since been depleted to pay for all sorts of programs during “rainy day” years.  Currently estimated to be worth almost $25 billion, Smith has set a target of a Heritage Fund of $250-$400 billion by 2050 of investment and interest, creating a substantial Alberta “sovereign wealth fund.”

While today’s budget confirmed two major policy decisions (investing about $2 billion this year into the fund and limiting government spending below the legislated rate cap of inflation plus population growth), one must remember that such “bedrock” policy decisions in the past have been undone by future governments, often within the same party.

“Harmful and Foolish Federal Policies”

No Alberta budget, let alone one from a government which enjoys a good donnybrook with its federal counterpart, would be complete without a shot or two across the bow at Ottawa.  Alberta’s Finance Minister specifically called out the federal government as having:

“harmful and foolish federal policies…preventing Alberta’s economy from reaching its full potential and holding back…gains, not just in the province but across the country – rest assured (we) will continue to fight for what’s right for Albertans.”

What’s clear is that Smith and Horner are happy to play the role of being the leading provincial opposition to Prime Minister Trudeau and his Liberal government. Recent forays by the Prime Minister into Alberta to announce $175 million in federal housing funding were also met with accusations by provincial ministers of interference.  Yet at the same time, Premier Smith herself has acknowledged that she can work with federal Liberal Ministers such as Finance Minister Chrystia Freeland and Industry Minister Francois-Philippe Champagne.

The reality, as always, is that Alberta still needs to get things done in coordination with its federal counterparts.  What matters is who is leading the charge on the federal side.  Expect any announcement in which the Prime Minister is personally involved to be met with brickbats rather than bouquets from Edmonton.

What Does It All Mean?

Danielle Smith and the United Conservative Party (UCP) are coming into their first full year of governing since the May 2023 election, and the next twelve to eighteen months are the times when difficult decisions should be made by governments.

Smith also faces a weakened opposition party in the New Democrats as they are going through a leadership race to replace former Premier and Leader Rachel Notley.  Until a new leader is in place, Smith and the UCP will have a fairly free hand to enact their agenda.  However, the NDP has also implemented a short race to find a new leader who will be in place by June 2024 – just in time for the Calgary Stampede and the summer BBQ circuit.

Smith must also have one eye on the right flank of the UCP to ensure she remains largely onside with her agenda, and a budget surplus, coupled with recent policy decisions regarding gender identity were likely intended to keep these voters on-side.

This is a government that strongly believes it’s on the right track.  It went out of its way to highlight what it calls is the “largest health-care budget” in Alberta’s history, as well as ongoing collective bargaining across the public sector including teachers and nurses, and funding for key universities and polytechnics.

It appears that Premier Smith and Finance Minister Horner have sprinkled enough money into almost every funding envelope that there’s “something for everyone.”