Alberta introduces budget with less money allocated for natural disaster, new electric vehicles tax

Open this photo in gallery:

Alberta Finance Minister Nate Horner is warning that the coming year’s projected surplus is precarious as he presented a provincial budget that allocated less money for emergencies, such as drought and wildfires, while imposing a new tax on electric vehicles.

Mr. Horner, speaking to reporters before he tabled the 2024/2025 budget in the legislature on Thursday, said the government had to make difficult financial decisions as Alberta’s population grows, the cost of servicing debt rises, and revenue from oil and gas royalties slide compared with the year ending March 31, 2024.

“We’re trying to strike the right balance between saving for the future, managing our debt responsibly, and making sure that we have the infrastructure for a growing province,” the Finance Minister said. “It hasn’t been easy.”

The government, under the leadership of Premier Danielle Smith, intends to increase spending, but not at a rate that keeps pace with Alberta’s population growth and inflation.

Alberta expects to collect about $73.5-billion in revenue and spend roughly $73.2-billion, to record a surplus of $367-million in 2024/2025, according to Thursday’s budget documents. The budget is predicated on operating expenses growing by 3.9 per cent, while the government calculated population plus inflation at 7.4 per cent.

The $1.4-billion expected surplus in 2025/2026 is based on operating expenses growing by 2.4 per cent, despite the government predicting population plus inflation will hit 6.2 per cent. The following year’s $2.6-billion surplus depends on operating expenses increasing by 2 per cent, while Alberta assumes population plus inflation will ring in at 4.5 per cent.

“We’re taking a hard look at our financial situation,” Mr. Horner said.

The budget contains a $2-billion contingency cushion for the coming year, which Alberta earmarked for expenses tied to natural disasters such as floods, fires and droughts. The government, however, expects contingency expenses to hit $2.9-billion in the fiscal year ending March 31, up from its initial allocation of $1.5-billion, because of the record-setting wildfire season and the drought.

Fire and an agricultural disaster could quickly deplete the contingency fund for 2024/2025 given the widespread drought already affecting the province and predictions for a difficult wildfire season. There are 53 fires currently burning in the province. Alberta is also trying to manage the water shortage, especially around southern Alberta’s parched fields and pastures.

“We know we’re starting in a rough spot,” Mr. Horner said.

Ms. Smith, during a television address paid for by government, last week told Albertans she instructed Mr. Horner to keep spending growth below the United Conservative Party’s legislated population-plus-inflation ceiling. The government, she said, must avoid bloat in order to direct cash toward the Heritage Savings Trust Fund, which previous politicians raided.

The fiscal plan released Thursday, however, is short on deposits into the fund. Alberta plans to direct $2-billion into the fund in the coming fiscal year, but nothing in the following two years, according to the budget.

Mr. Horner noted that the fund will reinvest its earnings rather than divert them to the province’s coffers. The Heritage fund will then be worth about $25-billion. Ms. Smith said she will release a plan, later this year, to grow the savings account to between $250-billion to $400-billion by 2050.

New Democratic Party Leader Rachel Notley said the budget is “built on broken promises” and will stall the services Albertans rely on by not keeping up with inflation and population growth.

Jason Foster, an associate professor of labour relations at Athabasca University and director of the Parkland Institute, said it is a “nothing budget” that fails to address pressing issues, such as affordability and a potentially devastating wildfire season. He said there is also limited money in the budget for public-sector negotiations.

“When your roof is leaking, it’s not the time to put money into your savings account,” he said.

The budget includes a new tax on electric vehicles that will cost EV owners $200 per year, starting as early as next year. Alberta expects to collect $1-million from the tax in 2024/2025 and about $8-million in 2026/2027.

Mr. Horner said the tax is necessary because EV drivers do not pay fuel taxes, which are directed toward maintaining Alberta’s highways.

“I’m interested in fixing the roads,” he told reporters. “You’ve seen the revenue line. We need everyone to help.”

Alberta also plans to increase its land titles registration levy; raise taxes on cigarettes and smokeless tobacco; and roll out a new tax on vaping.

The province deferred a campaign promise to create a new tax bracket of 8 per cent on the first $60,000 of income, which it calculated would save residents about $760 per year. If fully implemented by 2027, the change would knock about $1.4-billion out of the government’s revenue, further undermining the stability of the predicted surpluses.

Alberta expects bitumen royalties to hit $12.5-billion in 2024/2025, compared with its forecast of $14.4-billion in 2023/2024, according to the budget. It predicts revenue from other resources will clock in at $4.7-billion in the coming year, down from the $5-billion expected in the current fiscal year.

The 2024/2025 budget depends on West Texas Intermediate, the North American benchmark price for oil, trading at an average of US$74 per barrel. The budget also banks on the light-heavy differential hitting US$16 per barrel and narrowing to US$13.60 per barrel in 2026-2027 as the Trans Mountain pipeline-expansion project adds shipping capacity later this year.

For every US$1 drop in the price of oil, the budget will be thrown off by $630-million.

Alberta expects to spend $28.3-billion on health in the coming year, compared with the predicted $26.9-billion in the current year. The province earmarked another $306-million for mental health and addiction, compared with the $230-million it expects to spend this year.

Ms. Smith campaigned on a promise to dismantle Alberta Health Services, which delivers health care in the province, and place more power in the hands of local decision-makers. The government has yet to lay out a clear vision for how the shakeup will unfold.

The government increased the education budget to $9.7-billion, up from $9.3-billion.

Budget Highlights:

WTI: Alberta’s 2024 budget assumes the North American benchmark West Texas International oil price will average US$74 per barrel in 2024-25, down by US$2.50 from the 2023-24 forecast. The government assumes prices will hold steady over the medium-term. Alberta expects a huge chunk of its revenue to come from oil and gas, in part because of its bet on the completion of the Trans Mountain pipeline expansion project.

Health care: The health care operating budget is increasing by 4.4 per cent to $26.2-billion from the 2023-24 forecast as Alberta forges ahead with plans to dismantle Alberta Health Services and create four separate organizations to oversee acute care, primary care, continuing care and mental health and addictions. The budget is expected to grow by 2.5 per cent in each of the following two years.

Wildfires: More than $200-million will be spent to better prepare the province for natural disasters after last year’s unprecedented wildfire season depleted Alberta’s contingency fund. The budget accounts for $151-million over three years to enhance the province’s wildfire management program, in addition to $55-million to upgrade facilities and equipment used for wildfire fighting operations.

Electric vehicles: The budget adds a new tax on electric vehicles that could cost Albertans $200 annually, beginning as early as next January. The government said the heavier vehicles cause “more wear and tear on provincial roadways” and implementing the tax is only fair because electric vehicle drivers no not pay a fuel tax. It is estimated to bring $1-million in revenue in 2024-25.

Other taxes: The Alberta government is also increasing tobacco taxes to generate an estimated $25-million in revenue for the fiscal year. The tax on cigarettes is increasing by 2.5 cents to 30 cents per cigarette and by 7.5 cents to 35 cents per gram on smokeless tobacco.

Personal tax break: The United Conservative Party’s promised personal tax cut is to come into effect over the next two years if the province is fiscally sound. Thursday’s budget said, in 2026, the government intends to introduce a nine per cent tax bracket for income up to $60,000. However, it is “contingent on the province maintaining sufficient fiscal capacity to introduce the tax cut while maintaining a balanced budget.”