High deficits and low oil prices: Alberta’s latest budget accepts what the last one did not

CALGARY — A year ago, the UCP government was accused of being overly optimistic – presenting a budget brimming with rosy projections of economic recovery and extremely ambitious hopes for the rising price of oil.

Nobody will point that finger this time.

Alberta’s 2021-22 fiscal framework is cautious, even pessimistic at times, acknowledging what the government has been accused of ignoring in the past – that times are tough, and oil alone won’t save us.

“Here’s the reality,” said Alberta Finance Minister Travis Toews. “Energy prices come with volatility. This year … our economic assumptions, which are ultimately resulting in our revenue projections are very conservative. There is an awful lot of uncertainty yet and in an environment such as this, I think it important to be prudent and conservative in our projections.”

A year ago, the UCP government promised to be running a surplus before its first term was complete.

Not any more.

It’s projecting an $18.2 billion deficit over the next year, dropping to $11 billion after that and $8 billion by 2023-24.

There is no plan for getting back into the black. The province just hopes to avoid sinking too deep into the red.

While Toews was publicly scolded last year for basing his budget on lofty, unrealized prices of oil, the finance minister is much more bearish this time.

Seemingly no longer content to bet its fortunes on what it hopes will happen with its most valuable natural resource, the province is budgeting for what is actually happening with it.

It’s counting on US$46 per barrel of oil this year, rising to $55 the next and more than $56 after that.

The day the 2021 budget was released, oil was selling for more than $60 per barrel.

No new taxes for Albertans

The province isn’t creating new taxes though it is expecting to collect an extra $700 million from existing ones.

It’s anticipating a boost from personal income tax as more people get back to work while others move to this province, expanding the tax base.

While it’s not technically a tax increase, the province will continue to de-index personal tax exemption limits, meaning Albertans’ tax brackets won’t rise with inflation as they used to, resulting in slightly higher tax bills.

While Alberta is counting on that money from earners, it’s not optimistic about businesses, many of which have been crippled by the pandemic.

The budget anticipates collecting $351 million less this year from corporate tax.

Alberta accepts reality on employment too

The government is also removing its rose-coloured glasses when it comes to unemployment, projecting it to be 9.9 per cent this year – a figure once unfathomable in booming Alberta, but now a grim reality thanks to energy industry woes and the pandemic.

The Kenney government hopes the rate drops to 6.3 per cent in three years but that’s still nearly twice as high as it was a decade and a half ago.

While the province isn’t taking a scalpel to health care as many feared – even pledging to boost its base budget by nearly a billion dollars – and is maintaining education funding at its current level, it is hinting that more cuts are coming to the public sector.

The finance minister says he’s sticking to his previous plan of cutting the public service by eight per cent.

“Perhaps if governments had shown more restraint in previous years, we would not have had to confront this issue,” said Toews in a speech to his legislature colleagues.

“But, simply put, we no longer have the revenue to justify higher comparative wages.”

Toews says some of those cuts have already happened, mostly through attrition, and he expects that to continue.

He also isn’t speculating at when the province could eventually pay off its deficit and balance the books.

What was once a cornerstone of the UCP’s fiscally conservative plan when it took office is now simply a hope, somewhere down the road.

Correction:

The original headline of this story indicated the budget would be the second to be released in Alberta during the pandemic. The budget released in 2020 made no accounts for the arrival of COVID-19 to the province.

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