The bonanza that will define Alberta’s finances this year starts to take shape this week with a fiscal update that will forecast the province’s surplus at more than $13-billion, instead of the $515-million predicted at the beginning of this year.
Premier Jason Kenney said this in a video late Tuesday, adding that the province will re-index personal income taxes beginning this year – a move that prevents “bracket creep.” Groups as different as the opposition NDP and the Canadian Taxpayers Federation had called for the change.
The oil-rich province will also announce it likely can pay off a significant portion of its debt and inject about $3-billion into the long-neglected Heritage Savings Trust Fund this year, Alberta Finance Minister Jason Nixon told The Globe and Mail.
“There are times the last couple of months that I thought the surplus would be another $10-billion more,” Mr. Nixon said in an interview late Tuesday, just before Wednesday’s fiscal update.
“It really shows how fluid the natural resource situation is – which has always been a struggle that Alberta has had when it comes to our budget conditions.”
Anyone paying attention to the province’s finances knew a record-breaking surplus (in nominal terms, not in inflation adjusted per person terms) was possible in the 2022-23 fiscal year. But the first quarter forecast is still a stunning turnaround for a province that two years ago this month predicted a deficit of more than $24-billion, the largest in its history, and a debt headed well north of $100-billion.
As volatile as world commodity prices continue to be, and as pressing as climate concerns are, Mr. Nixon said the numbers he will lay out on Wednesday repudiate predictions the province’s oil and natural gas sector would never recover its financial heft.
“These significant windfalls that you’re seeing in our budgetary process, you’re also seeing some of those windfalls in the Canadian budget process,” he said. Ottawa recorded a $10.2-billion surplus for the first quarter of the fiscal year, in part due to higher commodity prices.
“This is something that we’ve been trying to emphasize to the rest of the country – the critical component of the oil and gas industry, not only to Alberta’s economic future, but to the country as a whole.”
Mr. Nixon said Alberta’s overall debt will be knocked down to below $80-billion. That will help reduce debt-servicing costs that total billions of dollars annually.
“We are going to go ahead and clear this year’s debt – any debt that comes due this year,” Mr. Nixon said, noting he will lay out more details on Wednesday as he explains how the province’s cash reserves also contribute to that debt repayment.
No Ralph Bucks or Kenney Cash will be announced in Wednesday’s fiscal update similar to the $500 (or so) direct payment to residents Saskatchewan Premier Scott Moe announced last week, and promised by François Legault, seeking re-election in Quebec. I asked Mr. Nixon whether he considered such payments, and why he decided against them.
“Obviously we looked at every option,” he said. But in helping Albertans with unprecedented inflation, “one of our focuses would be on trying to bring forward programs that did not create or make the inflation situation worse.”
However, other “affordability programs” will continue for the time being. Alberta’s gasoline tax holiday will stay as long as resource prices remain high, he said. And the electricity rebate program is showing significant promise in reducing Alberta’s inflation rate, he said. He expects natural gas rebates during the colder months will do the same.
The United Conservative Party government will also re-index provincial income tax. Alberta, Nova Scotia and Prince Edward Island are the only provinces that don’t automatically raise their personal tax brackets to account for inflation. In July, a report found that Albertan households have paid hundreds of millions of dollars in additional taxes since 2019, when the province paused the indexation of income tax thresholds to inflation.
On Tuesday, Mr. Kenney called it “one of the painful decisions that we made.”
“Recognizing that our finances are back in order, we are now able to restore full indexation of Alberta’s provincial personal income tax system, effective this year,” he added.
But perhaps one of the most significant changes in the fiscal update is bolstering the Heritage Fund. Established 46 years ago by the Lougheed government “to save for the future, to strengthen or diversify the economy, and to improve the quality of life of Albertans,” there’s nothing like it in other provinces. The long-term savings fund was created to set aside a portion of the province’s prolific non-renewable resource revenues each year.
But that idea faded away in times of financial stress. In 1987, the transfer of natural resource royalty revenues to the fund were halted. The value of the fund has eroded – as oil and gas royalties rolled in – and its returns often went into general revenues.
The net assets of the fund were valued at $18.7-billion in March, and a $3-billion infusion is far from insignificant. I noted that Peter Lougheed would be happy with that amount. “He sure would,” Mr. Nixon said.
UCP leadership candidates participated in the last debate of their campaign in Edmonton on Tuesday evening. A new Alberta premier will be sworn in after the Oct. 6 leadership vote. That person will have different challenges than Mr. Kenney, who governed through the depths of the pandemic and global oil prices that briefly went into negative territory.
“This government worked really hard over the last three years, and Alberta worked hard with us, to be able to bring our spending in line with other jurisdictions,” Mr. Nixon said. “Just because we have high revenues doesn’t mean we should go back to bad spending habits. Instead, we should be using it to save for the future, pay down debt or, of course, deal with unique circumstances like inflation.”
The government talks often about its work to rein in spending. But the 2022-23 non-renewable resource revenues are also likely to be the highest on record, according to Mr. Nixon. And the temptation to spend every last bit will be difficult to resist, especially as the world recovers from the effects of the pandemic.
“It’s actually a real challenge to be able to try to keep on the right trajectory, and to not make the mistakes of the past.”
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