For members with stores in Alberta: Alberta Forecasts Oil Dependent Balanced Budget and $96 Billion Debt by 2023

On March 22 Alberta Finance Minister Joe Ceci tabled what is likely the Government’s last full budget before the spring 2019 general election, outlining the government’s 5-year plan to achieve a balanced budget.

The plan is heavily reliant upon oil prices and revenue from three new pipelines, including the controversial Trans Mountain expansion, in addition to a contribution of over $1 billion in annual federal carbon tax revenues, beginning in 2021.

The 2018 budget forecasts a $8.8 billion deficit ($9.1b deficit in 2017), features some new spending announcements, including funding to administer new labour laws. The budget does not offer any personal or corporate tax relief.

BACKGROUND:

Alberta’s Economic Recovery:
• The NDP Notley government took power in 2015 as oil prices, the backbone of Alberta’s economy, were falling by half from previous highs of more than US$100 a barrel. Oil prices are slowly returning, and the government based its 2018 budget on a US$59 a barrel estimate.

• 2017 economic indicators show that the province is recovering, including real GDP growth of 4.5%, exports increasing by nearly 30%, housing starts growing by 20% and retail trade expanding by 7.5%. There were also 38,000 new jobs in the last three months of 2017 — with the unemployment rate forecasted to fall to 6.8% in 2018.

• The Conference Board of Canada forecasts Alberta’s economy to grow by 2.7% this year, placing the province among the growth leaders in Canada. Beyond 2018, Alberta’s economy will move from recovery to expansion, with continued growth of around 2.5% per year expected from 2019 to 2021.

$96 Billion Growing Debt Problem
• The deficit forecast for the 2018-19 fiscal year is $8.8 billion, based on $47.9 billion in revenue and $56.2 billion in expenses. The accumulated debt is forecasted to climb from $54 billion in the coming year to $96 billion by 2023 by the time the government plans to return to budgetary balance.

• By 2023, over $3.7 billion in revenues will be required to service annual dept costs. Interest payments on the debt this year alone will be $1.9 billion, more than all royalty payments expected from bitumen.

• Over the next four years the government says that spending will continue to grow by about $4 billion, on revenue growth of $6 billion. While the government is reducing the rate of growth, it remains resistant to spending cuts.

• Alberta has been hit with multiple credit downgrades and warnings since the NDP inherited the oil depressed economy in 2015, and in their most recent credit downgrade in November 2017, ratings agency DBRS cited the NDP government’s continued reliance on “a recovery in resource revenues, rather than fundamental adjustments to the budget”.

Balanced Budget Oil Dependent
• The Government’s balanced budget plan will primarily rely on anticipated revenue from the yet-to-be built and controversial expansion of the Trans Mountain pipeline, along with expected revenue from the Enbridge Line 3 and Keystone XL projects.

• Non-renewable resource revenue, which includes oil and gas, bitumen and conventional oil royalties, is expected to generate $3.8 billion this year, growing to $10.4 billion by 2024 when all three pipelines are generating revenues.

$1 Billion of Carbon Levy to General Revenues
• On January 1, 2018 the carbon levy was increased from $20 per tonne to $30 per tonne. Over the next 3 years, revenue from the carbon levy is expected to raise $5.4 billion, all of which the government has committed to reinvesting in the in-emission reduction programs and rebated to Albertans.

• However, when the federal government-imposed tax reaches $40 per tonne in 2021, Alberta intends to still use $30 of that for projects intended to reduce greenhouse gases, however announced that they will use the remainder for general spending purposes. The additional $1 billion-a-year will be pumped into general revenues by 2023-24.

• The Alberta government has previously stated that the adoption of the federal carbon plan is tied to the go-ahead of construction of the Trans Mountain expansion.

Retail Impacting Announcements:
• Although retail is the largest private sector employer in Alberta, representing over 10.9% of Alberta’s labour force, there was nothing material in the 2018 budget designed to support retailers.

• The government highlighted that retail sales increased 7.5% in 2017, however it failed to acknowledge the headwinds our sector is likely to face when minimum wage climbs to $15.00 on October 1, 2018.

• The Ministry of Labour received $223 million in the 2018 budget, including additional funding to support updated labour laws such as:
o Fair and Family-friendly Workplaces Act: More Employment Standards Officers will be hired to manage complaint resolution, proactive inspections and penalties.
o Occupational Health and Safety (OHS) system review and Workers’ Compensation Board (WCB) review: Additional OHS officers will be hired to ensure Alberta workplaces are safe and healthy. A new fair practices office and medical panels office will be created to ensure the workers’ compensation system is fair and provides greater benefits to support injured workers.
o The budget also includes $114 million for workforce strategies, including $41 million for skills and training support for Albertans entering the labour market.

Other Notables:

• Cannabis: For the first time, recreational cannabis revenue is being factored in. Alberta expects to take in $26 million in taxes over this coming year.

• Liquor and Tobacco: there are no increases for liquor and tobacco.

• Basic Personal Amount: there are no changes in personal and corporate income tax rates. Alberta’s tax system is indexed to inflation to ensure the value of tax credits is not eroded over time. The basic personal amounts will increase 1.2% in 2018 to $18,915 – the highest among the provinces.

• Social Programs: The government is expanding two social programs which were rolled out on a limited basis over the last two years. The school lunch program will expand from 5,000 to 30,000 students at a cost of $16 million, while a $25-a-day childcare program will be hiked by 4,500 spaces for a total of $393 million.

• New Schools: 20 new schools will be built, supported by 600 new teachers.

• Salary Freeze: The salary freeze on non-union employees across the public sector is to be extended to September 2019.

• Health Care: The budget increases funding for core programs in education, health and community services. Health representing 40% of total expenses, increasing by 3% to $22.1 billion.

• No Cuts: There are no major cuts in services.

Next Steps:

• RCC will oppose any new carbon tax revenues being deposited into general revenues, as this would effectively result in Albertans paying $1 billion in new taxes.

• RCC will seek to ensure that new labour department initiatives do not place an unreasonable burden on employers, including retail members.

• In anticipation of a spring 2019 election, RCC will actively meet with all parties to ensure candidates are well informed about how to best support a vibrant retail sector.

If you have any questions or concerns, please do not hesitate to contact: John Graham, Director, Government Relations (Prairie Region) at 204-926-8624 or jgraham@retailcouncil.org.