- Canadian province plans C$34 billion of investment in 5 years
- Budget deficit to reach record C$6.1 billion this fiscal year
Alberta will boost investment in schools, hospitals and transportation projects and run deficits in a bid to stimulate growth as it confronts a collapse of oil-sands revenue that threw the western Canadian province into recession.
The capital spending plan to build and renovate facilities and infrastructure will total C$34 billion ($26 billion) over five years, a 15 percent increase over the previous Conservative government’s plan, as part of a recommendation by former Bank of Canada Governor David Dodge. This fiscal year’s deficit will reach a record C$6.1 billion before narrowing in the coming years as the province aims to return to a surplus in 2019-2020, according to a budget plan disclosed in Edmonton on Tuesday.
“The citizens of this province want to see a plan to balance the budget within a reasonable amount of time -- without reckless cutbacks that will only have to be repaired later,” Finance Minister Joe Ceci said in a transcript of his speech to the provincial legislature.
Premier Rachel Notley, whose left-leaning New Democratic Party ended three decades of Conservative rule in May elections, inherited a province that’s heavily reliant on revenue from crude and natural gas. With oil worth less than half its peak in June 2014, Alberta plans to take advantage of its triple-A debt rating to fund operations with debt for the first time in more than two decades around next year, after drawing on the province’s contingency fund to help cover the current deficit.
Alberta’s recession ends two decades of oil-driven economic might that led the country’s growth, including a 4.4 percent expansion last year. The economy will shrink 1 percent this year and return to growth of about 0.9 percent in 2016, the finance ministry estimates.
The collapse in energy prices has dealt a blow to royalties and leases the province collects from petroleum production, more than half of which from bitumen mining in the oil sands. Those levies amounted to almost C$9 billion of revenue in the last fiscal year, accounting for about a fifth of the budget, and will shrink to C$2.8 billion in the current one. They’ll rise to C$4.4 billion in 2017-2018.
Notley’s government earlier this year raised tax rates on corporations and higher-income earners to help offset the revenue decline from energy royalties, while continuing to boast the lowest burden on companies and individuals of any Canadian province and remaining the only one that doesn’t charge a sales tax. Those increases are estimated to generate C$2.06 billion in two years. Higher taxes on tobacco, liquor and locomotive fuel will add about C$6.1 billion in three years.
The government is forecasting an average price for West Texas Intermediate crude of $50 a barrel during the fiscal year that started April 1, just below its $51.41 average trading price in New York since then. For the next fiscal year, it expects a price for the U.S. crude benchmark of $61.
Producers in the province exported C$1.3 trillion worth of oil and gas between 1971 and 2015, most of which has been used to pay for health care, schools and transportation infrastructure. The province’s Heritage wealth fund is currently valued at about C$15 billion, compared with $1.1 trillion for Norway’s sovereign wealth fund, which was established after Alberta’s.
That gusher of oil wealth has pushed up costs in the province as it lured scores of workers from elsewhere in Canada and other countries. Alberta has spent 6 percent more each year on health care for the past decade, a rate that Ceci and Notley plan to lower to 2 percent annual increases in fiscal 2018-2019.
To help compensate for tens of thousands of positions that were eliminated in the energy industry this year, the government will support small, medium-sized and large businesses and non-profit organizations that post a net increase in their payroll by granting up to C$5,000 for each new job they create, covering as many as 27,000 new positions annually through 2017.