The NDP government has maxed out its credit card and been forced to apply for a higher limit, boosting the province’s borrowing to offset a 90 per cent reduction in resource revenues.
The three-year fiscal plan set out in Thursday’s provincial budget projects borrowing to nearly double by 2018-19 — hitting $57.6 billion and exceeding the self-imposed cap Rachel Notley’s government set in law last fall.
Finance Minister Joe Ceci was forced to introduce legislation Thursday to eliminate the cap, allowing the government to continue to invest in infrastructure during the fiscal crisis without breaking its own law.
“We are in a different situation than we were six months ago,” he explained to reporters at the legislature. “Our economy has changed dramatically.”
The government had vowed it would keep borrowing below 15 per cent of GDP, but by 2018-19 debt will reach 15.5 per cent.
Just a decade ago, then-premier Ralph Klein was touting Alberta’s debt-free status.
With oil and gas revenues forecast to raise only $1.4 billion this year — the lowest amount in four decades — the NDP held true to its promise to ride out the fiscal storm without slashing jobs in the civil service or hacking programs and services.
“It would only cause more pain and economic anxiety, tearing at the fabric of our communities and making a difficult situation that much worse,” Ceci said in his budget speech in the house.
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The borrowing funds a five-year, $34.8-billion capital plan and also covers a projected record $10.4-billion fiscal deficit.
For the first time since 1994, Alberta will borrow money — $5.4 billion this year, $8.4 billion next year — for operational spending to run the province, having finally depleted its $6.5-billion contingency fund. Previously, Alberta governments borrowed for capital projects only.
Ceci told reporters he didn’t expect the province to be back in the black until 2024 and he said he has not yet set out a blueprint to get there.
“We will not make the choice of balancing our books and reducing our debt on the backs of Albertans,” he said.
Ceci said the government is focused on limiting the growth of operational spending to two per cent per year, generating jobs and diversifying the economy — even though, by itself, it won’t close the gap between revenue and expenses.
But a sales tax was never considered, he said.
“We’ve repeatedly said no to sales tax,” he said. “Albertans don’t want sales tax. We’re not bringing it in … We’ll manage our way through this by reducing the cost of our operations.”
The budget — titled The Alberta Jobs Plan — actually forecasts a decrease in jobs for 2016, but Ceci said he hoped the budget would provide an environment that will create 100,000 full-time, permanent jobs over the next three years.
In addition to debt and $8.5 billion in capital spending, Budget 2016 ushers in an economy-wide carbon tax that’s expected to raise $9.6 billion over the next five years.
About a third of the revenue — $3.4 billion — will be rebated to Alberta households and businesses through direct rebates of $200 for single Albertans earning less than $51,000, and $300 for couples earning less than $95,000, and through a one percentage point drop in the small business tax — to two per cent from three.
The remaining $6.2 billion will be invested in large-scale renewable energy projects, green infrastructure such as public transit and energy efficiency initiatives that have not been outlined.
The $178-million job creation program announced in the previous NDP budget — but killed before it created a single job — has been replaced with a $250-million job creation tax-credit package.
Wildrose leader Brian Jean speaks to the media after the NDP delivered the 2016/2017 provincial budget at the Alberta Legislature, in Edmonton Alta. on Wednesday April 14, 2016. Photo by David Bloom
Wildrose Leader Brian Jean slammed the budget for its “dangerous levels of borrowing” and for implementing the economy-wide carbon tax that will hike gasoline prices nearly five cents a litre and boost natural gas bills by $1 a gigajoule.
“This new $9-billion carbon tax is a nightmare for families,” he said. “It means $1,000 each and every year in new taxes for the typical Alberta family.”
Jean said credit downgrades are coming, bringing higher interest payments and over the long term that will leave less money for hospitals and schools.
PC Leader Ric McIver called the debt “the monster in the room.”
“It will be harder and harder for Albertans to keep up with the debt Alberta is taking on in their name,” he said. “I think that is a disaster waiting to happen and the government has … no plan to deal with it.”
Amber Ruddy, of the Canadian Federation of Independent Business, applauded the decrease in the small business tax, but expressed alarm at the growing debt load and the impact of the carbon tax.
“Today’s deficits are tomorrow’s taxes,” she said.
Canadian Taxpayers Federation Alberta director Paige MacPherson said debt servicing costs will hit $2 billion by 2018-19.
“In 2018, we could hire about 20,000 teachers with that amount of money that we’re spending instead on debt interest payments,” she said.
Both Joel French of Public Interest Alberta and Ricardo Acuna from the Parkland Institute applauded the budget, but warned the government must address the revenue shortfall — either by modifying the tax system or introducing a sales tax.
