Alberta is expecting to balance its books for the second time in 10 years due to higher-than-expected resource prices, according to its official 2022 budget, released on Thursday.
On Feb. 24, the province revealed its plans to balance the budget by fiscal year-end in March of 2023, for the first time since 2015. The province is also forecasting a $511-million surplus for the year.
A sustained rebound in oil prices has been driving the province's recovery, and oil prices spiked to $100 per barrel on budget day, although the province predicts that for the next year the price will sit at $73 per barrel.
“In 2022, Alberta’s economy will fully recover from the contraction that first started in 2013 and we will lead the nation in economic growth,” Alberta's Minister of Finance Travis Toews said on Thursday.
“There is no doubt rising energy prices have improved the balance sheet and the bottom line.”
When the United Conservative Party (UCP) came into power in 2019, the party vowed to balance the budget in its first term, while battling a recession that began in 2013, but Alberta's economic picture worsened due to the COVID-19 pandemic and oil-price crash. In April 2020, oil tanked to a low of $16 per barrel.
Over the next few years, the province is expecting oil to stabilize below the current year’s oil-price prediction — hitting $70 per barrel for 2023; $67 per barrel in 2024; and $65 per barrel in 2025, attributing the surge in price to pent-up demand, which will then drop down to a moderate price.
Alberta’s fortunes will continue to be tied to oil prices. Every $1 change in the per-barrel price is expected to impact the provincial balance sheet by $500 million.
And if oil prices hadn’t jumped in the past year and stayed at the $46-per-barrel price outlined in the 2021 budget, the province would still be battling a deficit.
“At $40 or $50 of [oil] prices, we wouldn’t be projecting a balanced budget,” Toews said, adding the financial picture is good for the province, with a projected $500-million surplus by the end of the March 2023.
Toews said the province set a financial goal to keep the debt-to-GDP ratio under 30. The metric to measure this compares the public debt to gross domestic product (GDP), which is often seen as an indicator of the province's ability to pay back debt, at below 30 per cent, and this year it is predicted to clock in at 18.3 per cent. The province's 2021 budget expectation was for this year to bring a debt-to-GDP ratio of 24.5 per cent.
“Alberta has the lowest net-debt-to-GDP ratio in the nation, and our responsible fiscal management will maintain that strong position,” Toews said.
The finance minister said one of the most important things his government has done to deal with the deficit is to bring down government spending in alignment with other provinces.
“That fiscal discipline, that very significant effort by certainly every ministry across government, I believe, is really positioning the province to be much more fiscally sustainable in the future,” Toews said.
With a recovering economy and a corporate tax rate at eight per cent, down from 12 per cent a few years ago, Toews said there has been increased economic activity in the province and Alberta is seeing a more diversified economy.
“There's no doubt we're relying on the energy industry. It's a big part of the province’s economy, but as we continue to see a more diversified economy, we will begin to see more stability and other revenue streams,” Toews said.
Corporate tax revenues are expected to increase in the coming years and the government expects to collect $400 million more in taxes, with the corporate tax rate sitting at eight per cent.
Tax revenue is forecast to be the largest source of revenue in the years ahead and in the 2022-23 fiscal year. Of the $62.6 billion in projected revenue, $13.8 billion is projected to come from non-renewable resource revenue, and $23 billion is projected to come from taxes.
The province's overall proposed spending for fiscal 2022-23 is 4.3-per-cent less than the current year, which saw the province pour money into the COVID-19 pandemic response and supporting farmers during the province-wide drought.
The province has seen higher consumer spending, which has driven the economic recovery, but the 2022 budget document stated that weak business investment has been a drag on Canadian economic growth since the 2015 oil-price crash.
“Lower oil prices, regulatory delays, and infrastructure challenges have plagued resource development in the country, which has resulted in a plunge in investment in that sector. No other industries have stepped in to fill the gap. As a result, private sector investment in Canada was almost 12-per-cent lower in the third quarter of 2021 compared with levels at the end of 2014,” according to the 2022 budget document.
Overall investment in the country has failed to gain much ground since the 2009 recession, the 2022 budget document read, with weaknesses across many industries, including finance and insurance, construction, and international trade.
While the province's predicted spending is in line with revenues, there is still no concrete plan to pay back the debt.
Taxpayer-supported debt is projected to sit at $98 billion ($18.1 billion lower than 2021's budget estimate) by the end of March 2022, and is projected to drop to $95 billion ($33.4 billion lower than 2021's budget estimate) by the province's fiscal year-end in March of 2023.
Toews said, going forward, if the province can produce balanced budgets, the need to borrow for operations should become non-existent, but Alberta will see debt-servicing costs creep up as interest rates increase.
Debt-servicing costs are expected to be $2.7 billion by the end of March 2023, and until the debt is gone, the province will continue to pay interest costs on the borrowed money.
This budget year the province is projecting a $500-million surplus; $900 million in 2024; and $700 million in 2025. Toews said the plan will be to reinvest the money back into the Alberta Heritage Savings Trust Fund — the province's long-term savings fund.
“We are certainly working on building a plan right now for debt repayment,” Toews said Thursday.
As the economy picks up in the province, inflation is rising and expected to continue its climb in the coming years.
In 2022, inflation is predicted to sit at 3.2 per cent in Alberta, which is where the province landed in 2021. It is expected to go down in 2023 and drop to 2.2 per cent in the following years.
Although the economy is expanding, the unemployment rate in Alberta remains currently sits above seven per cent, and Toews said he has been surprised to learn that employers in the province are facing a labour shortage and that job vacancy rates have been extremely high.
A recent Alberta Chamber of Commerce survey found that almost half of businesses are experiencing moderate or severe labour shortages and 60 per cent said lack of applicants was a barrier to finding employees.
“It's a complex problem. There are a number of factors at play, but one of the factors is that many Albertans who want to get back into the workplace just don't have the skill set to do it,” Toews said.
To help tackle the labour shortage, the province is planning to invest $600 million over three years to Alberta at Work, a program dedicated to strengthening the labour force. The province's spending is projected to be $2.8 billion less than forecast in the 2021 budget, and is expected to grow by $1.1 billion through 2025.
Alberta at Work will provide $47 million over three years in capital funding and $25 million over three years in operating funding to support collegiate programs and charter-school expansions.
The program will also earmark $171 million over three years to expand student enrolment in areas with skills shortages and will provide for around 7,000 additional new post-secondary seats in areas such as computer science, information technology, and data modelling, finance, and financial technology (fintech), engineering, health care, and aviation. Another $30 million will be provided for apprenticeship expansion programs.
Alberta’s health-care operating expense budget is set to grow by $600 million this year, a 2.8-per-cent increase from the 2021 budget, and set to grow by a total of $1.8 billion by the 2024-25 to help scale up health-care capacity.
Alberta Health Services will see its budget grow by 3.3 per cent for the fiscal year ending in March of 2023, up to nearly $15.1 billion.
Over the next three years, Alberta is set to invest $100 million per year to provide additional health-care capacity on a permanent basis, including adding new intensive-care unit beds across the province.
The budget also includes a $750-million COVID-19 contingency fund for 2022, which will help address the surgical backlog in the province. Toews said if it is needed, the province is prepared to spend beyond the $750 million to battle future waves of the pandemic.
“Our government has been clear from day one, in this pandemic that we will not withhold resources from health in order to deal with a pandemic. That's been the way we've operated from day one back in 2020. And I can say with certainty that it will continue to operate in that manner,” Toews said.
The education budget is set to receive another $700 million in funding over the next three years. The budget earmarks $30 million in 2022-23 and $40 million in 2023-24 to support students who experienced academic challenges, such as learning delays, due to the pandemic.
Another $1.5 billion is slated for school capital projects, including 15 new or modernized schools across the province.
Some $191 million will be spent over the next three years to support the implementation for the new kindergarten to Grade 12 curriculum.
Natural gas rebate
A surge in energy prices in the province is taking a toll on Albertans facing a spike in energy bills at home.
To help battle high prices, the province will be offering a rebate, which goes into effect on Oct. 1 2022, and will run until the end of March 2023, which will offer consumers a rebate if the natural gas price rises above $6.50 per gigajoule. In the past month in the provincial prices have hovered around $4.60 per gigajoule.