Earlier this week, Travis Toews, Alberta’s minister of finance, released the mid-year fiscal report for the UCP government’s first full-year fiscal budget.
It’s not looking too good for the party that touted itself as fiscally responsible.
Last year, the party 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 2021, the UCP government will have bumped the provincial debt to $97.4 billion, just shy of $100 billion. That’s lower than the $99.6 billion they were predicting in the August update.
The provincial debt at the end of the 2019–2020 fiscal year was $74.1 billion, which is higher than the $67.9 billion they had forecasted. The total amount of taxpayer-supported debt had reached $62.7 billion at the end of the NDP’s term.
So, after two years in power, the UCP will have increased the debt by 55% over what the NDP had built it to when they left office.
Now, sure, much of the extra $23.3 billion in debt that we’ll have by the end of this fiscal year will be a direct result of the COVID-19 pandemic and the drop in oil prices. However, we must keep in mind that the debt was rising long before the pandemic came along.
Even after their first round of cuts last autumn, the UCP had already increased the debt by nearly $12 billion in just their first year.
On that note, according to last year’s 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 $125 billion. Remember, that’s just taxpayer-supported debt. If you include “self-supporting lending organization / activity debt”, it’s actually $144.5 billion.
The cost to service the provincial debt will be $2.147 billion in taxpayer support. That’s lower than the $2.22 billion predicted in the August updated but still higher than the $2.066 billion estimated in February. The UCP government forecasts this amount to grow to $2.660 billion by the next election.
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 $21.3 billion deficit. That’s less than the $24.2 billion they predicted in August but still more than 3 times higher than the $6.8 billion they had forecasted back in February, before the pandemic began. And it’ll increase the provincial debt by 26.7% over the February estimate.
About half of that deficit increase is fuelled by about $8.6 billion in less revenue. Also playing a role is $6.6 billion more in expenses (including an increase of about $2 billion more in capital spending) than previously budgeted.
On page 3 of the update, we find the following:
The revenue forecast has significantly declined in all three fiscal years. Severe revenue deterioration has forced the government to re-evaluate the time frame for balancing the budget.
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 low—Western Canada Select is 34.01 as I’m writing this—businesses are shut down because of the pandemic, and we have double-digit unemployment, 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||$4,194||$3,869||$4,030|
There are a few takeaways from this table.
First, every revenue source except one will probably be lower next March than the UCP had predicted back in this past February. The only revenue source to increase is transfer payments from the federal Liberal government. In fact, it is up by nearly $2.23 billion million over February’s forecast, and $1.4 billion more than forecasted in August. Most of that was in an increase of $2.1 billion in fiscal stabilization payments and safe restart funding.
Even if with the bump in funding from the federal government, federal transfers 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 bring in revenue, non-renewable resource revenues will come in at only $1.7 billion. This is the lowest level in over 40 years and will make up only 4% of all government revenue. Even before the mid-year adjustment, the UCP had budgeted only 10.2% of its revenue coming from resource royalties.
Third, despite dropping by $4.2 billion, income tax still will make up a third of government revenue in the 2020–2021 fiscal year. And 83% of that will be personal income tax.
Here’s how it breaks down:
|Budget||Aug forecast||Nov forecast|
|Personal income tax||$12,566||$10,712||$10,753|
|Corporate income tax||$4,539||$2,146||$2,188|
Both personal and corporate income tax will be lower this year than forecasted—although slightly higher (0.6% higher to be precise) than predicted in August—but personal income tax will take a smaller hit. Corporate income tax will be about $2.4 billion lower, while personal income tax will drop about $1.8 billion. Another way to look at it is that corporate tax will be 52% lower, and personal tax will be only 14% lower.
In the figures the UCP had forecasted in the spring, personal income tax revenue was supposed to be 2.8 times higher than corporate income tax revenue. With the adjusted figures, personal income tax will make up 5 times as much provincial revenue as corporate income tax over the next year.
The pandemic and low oil prices will certainly account for much of the decrease in corporate income tax revenue. After all, if you have to close your business, or your business is related to oil, then you’ll have less profit, and profit is where taxes come from.
There’s an additional cause for the drop. The UCP had planned to decrease the corporate tax rate from 10% to 9% this past July, but they changed their mind this summer and doubled the tax cut. And if the tax rate is lower than planned, that means revenue generated from that tax rate will also be lower.
According to the August update, the Job Creation Tax Cut eliminated $200–300 million from corporate tax revenue, or about 14% of the loss in corporate tax revenue. Had they kept the tax rate at 9%, they could’ve reduced up to $300 million. And if they had left the tax rate at the 12% it was when they took office, they could’ve reduced the deficit by even more.
The UCP government predicts that expenses for the 2020–2021 fiscal year will be nearly $63 billion, about $6.7 billion more than they had originally estimated in February. The vast majority of that increase ($4.8 billion) has been or will be spent on COVID-19 initiatives.
Here’s how the extra COVID spending breaks down by ministry:
|Community & Social Services||$60||–||$48||$62|
|Environment & Parks||–||–||$367||$277|
|Jobs, Economy, & Innovation||–||–||$316||$316|
|Labour & Immigration||$114||–||$273||$273|
The UCP government originally planned to spend only $500 million on their COVID-19 response during this fiscal year. Instead, they estimate having to spend 600% more than that. Combined with how much they spent at the end of the last fiscal year, they expect a total of about $3.2 billion to go toward COVID-19 initiatives.
This month’s update will see the government spending $13 million more on the pandemic than they had predicted back in August. Several ministries will see increases in pandemic spending. Four ministries will have pandemic spending relatively unchanged (Energy; Jobs, Economy, Innovation; Labour & Immigration; and Municipal Affairs).
Environment & Parks will have their COVID-19 reduced by $90 million, compared to the August forecast.
The government will be reducing the operating (non-pandemic) expense budget by only $47 million. Here are the operating expenses for each ministry, broken down by the original forecase, the August update, and this month’s update.
|2019-20 Actual||Feb budget||Aug update||Nov update||Change|
|Agriculture & Forestry||$868||$833||$827||$860||$27||$33|
|Community & Social Services||$3,965||$3,910||$3,909||$3,845||-$65||-$64|
|Culture, Multiculturalism & Status of Women||$205||$185||$173||$159||-$26||-$14|
|Environment & Parks||$558||$532||$508||$590||$58||$82|
|Jobs, Economy & Innovation||$282||$281||$296||$296||$15||$0|
|Labour & Immigration||$196||$209||$204||$204||-$5||$0|
|Seniors & Housing||$634||$637||$637||$637||$0||$0|
This month’s update not only shows $871 million more in spending cuts than the UCP planned in February, but spending is also $151 million less than it was in the August update.
And with nearly $900 million in spending cuts, it means there’s very little good news on the expense side.
In fact, there are only 3 ministries that have forecasts that are higher than they were in February:
- Health ($100 million )
- Advanced Education ($75 million)
- Environment & Parks ($58 million)
- Agriculture & Forestry ($27 million)
- Jobs, Economy, and Innovation ($15 million)
- Service Alberta ($13 million)
- and Transportation ($5 million)
However, when you compare them to the summer update and to even last year, it shows a different story.
Health, for example, might be up $100 since February, but it’s $201 million less than they forecasted in August and $154 million less than was spent last year.
Advanced Education is $104 million less than August and $277 million less than last year. Ag & Forestry is up $33 million over August but down $8 million from last year. Transportation is $2 million above August but $26 million less than last year.
Three ministries are ahead of last year.
Parks is $82 million above the August update and $32 million above last year’s spend. Jobs is unchanged from the summer but up $14 million from last year. Service Alberta is $16 million ahead of August but only $1 million more than last year.
All other ministries will see reduced expenses—a total of $391 million in budget cuts—with the largest ones being in Education ($132 million) Community & Social Services ($65 million), and Indigenous relations ($55 million).
At the end of the last fiscal year, the provincial government had borrowed $15.04 billion. Less than 10% of it went to provincial corporations or government business enterprises. Most of it when to the government.
This year, the UCP had planned to borrow slightly more than that: $15.791 billion. In August, they increased that by 81% to $28.553 billion in borrowing. They’ve since lowered that by $88 million. It’s still 80% higher than they have projected in February that they’d be borrowing this year.
Of that $28.465 billion, only $5.522 appears to be going to capital projects, which is $73 million more than predicted in August and $1.5 billion more than planned in February. The government also plans to use $17.671 billion of it to finance the fiscal plan; compare that to the $4.776 billion estimated in February and $10.867 billion in August.
Oh, and keep in mind that the $28.465 in borrowing is a net borrowing amount. The UCP government plans to take on nearly $30 billion in new debt this year, but $1.5 billion of that will be offset by changes in the money market.
So, in summary:
$41.4 billion in revenue
-$62.7 billion in expenses
$21.3 billion deficit
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 $51.3 billion in revenue and $57.2 billion in expenses this year, for a $6.6 billion deficit. Instead, they got $41.4 billion in revenue, $62.7 billion in expenses, and a $21.3 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.
In fact, to quote this week’s announcement, “The goal of balancing the budget in 2022–23 is being necessarily adjusted.”
I guess that’s one election promise that probably won’t be fulfilled.
Support this story
- 139 people sent me a one-time donation.
- 193 people send me a donation every month.
- 234 people receive my monthly newsletter.