Alberta Budget: Province to post $511M surplus on the back of higher oil and gas prices

The 2022-23 budget presented Thursday could be the province’s first balanced budget since 2014-15, but some projected spending increases, including in health care operating costs and K-12 education, do not keep pace with high inflation and population growth pressures.

Publishing date:

Feb 24, 2022  •  5 hours ago  •  5 minute read  •  17 Comments

Premier Jason Kenney, left, applauds and other MLA's congratulate Finance Minister Travis Toews after delivering the 2022 Alberta budget in the chambers at the Alberta legislature in Edmonton on Thursday, Feb. 24, 2022.
Premier Jason Kenney, left, applauds and other MLA’s congratulate Finance Minister Travis Toews after delivering the 2022 Alberta budget in the chambers at the Alberta legislature in Edmonton on Thursday, Feb. 24, 2022. Photo by Ed Kaiser /Postmedia

A windfall from high oil and gas prices could hand Alberta’s government at least a $511 million surplus, with a budget set to boost operational health spending by $515 million.

Advertisement

The 2022-23 budget presented Thursday could be the province’s first balanced budget since 2014-15, but some projected spending increases, including in health care operating costs and K-12 education, do not keep pace with high inflation and population growth pressures.

With oil prices riding a high, the budget estimates bitumen royalties will hit $10.3 billion in 2022-23, up from just $2 billion first budgeted in 2020-21 when global energy prices tanked amid the COVID-19 pandemic, and $1.4 billion at the same time last year.

The black ink comes as the government banks on rising employment rates, growing personal income and corporate tax revenue, and more than $12 billion in expected federal transfers.

Finance Minister Travis Toews told reporters at a Thursday news conference before tabling the budget that the government’s focus is on keeping taxes low, attracting business investment, and reining in government spending. He predicted that this year, Alberta’s economy will fully recover from its 2014 contraction, and for the government to post surpluses in the following two fiscal years.

Advertisement

Breaking down the budget expenses. Graphic by Darren Francey/Postmedia
Breaking down the budget expenses. Graphic by Darren Francey/Postmedia

“We’re focusing on what we can manage — oil prices will go up and down, but we’re looking to create more stability, more sustainability in Alberta’s income statement,” said Toews, who added the UCP government’s spending has been trimmed to within that of comparator provinces.

“Without the flattening of this operating expense curve, we would not be presenting a balanced budget today,” he said.

The government is basing its budget projections on an average West Texas Intermediate (WTI) price per barrel of US$70 in 2022-23, while WTI continued to trade above US$90 a barrel Thursday.

Revenue is expected to be $62.6 billion in 2022-23, and forecast to grow to $63.9 billion by 2024-25. With expenses budgeted at $62.1 billion, the province plans to spend $2.8 billion less than last year’s budget projected it would in 2022-23.

The government now estimates its net debt-to-GDP ratio will go as low as 16.7 per cent in 2022-23.


Watch the press conference here

Advertisement

We apologize, but this video has failed to load.


Taxpayer-supported debt is pegged at $97.7 billion at the end of March, and $94.7 billion by the end of 2022-23, when debt-servicing costs could be $2.7 billion.

The deficit for 2021-22 is now forecast at $3.2 billion — $15 billion lower than reported in last year’s budget and $2.6 billion lower than the mid-year fiscal update.

In 2022, the government expects real GDP to grow at a rate of 5.4 per cent.

October natural gas rebate to target high cost of living

The budget promises to bring a consumer price protection mechanism over six months. If natural gas prices exceed $6.50/gigajoule on a monthly basis, a utilities rebate will be triggered between October and March 2023.

Toews said Thursday if natural gas prices exceed the threshold before October, he would expect the government to move up the October start date.

Advertisement

As rising grocery costs and utility bills squeeze Albertans’ household budgets, the finance minister said the government is working to support them by focusing on economic growth and more jobs.

“The most durable and beneficial thing that governments can do in times of inflation is to spend less, borrow less, and tax less,” said Toews, who added he is confident wages will go up faster and higher than inflation in the next three years, although he acknowledged that many Albertans are not benefiting from a pay raise.

The budget documents forecast inflation to average 3.2 per cent in 2022, the same as last year’s rate, before declining gradually to around 2.2 per cent by the end of the forecast period. In Alberta, inflation spiked to a nearly 15-year high of 4.8 per cent in December.

Advertisement

In 2019 the UCP government decided to pause personal income tax indexation, and with the 2022-23 budget it will remain on pause, meaning the cap for tax-free earnings doesn’t move up with inflation and a bump in wages could push workers into a higher tax bracket.

Resuming the re-indexation of those taxes would cost the government an estimated $200 million. Toews said he would consider it in 2023.

Meanwhile, the province’s workforce is getting a $600-million boost over three years to address labour shortages, much of it aimed at training and retraining.

Budget ‘high on oil prices and low on support for families and businesses:’ Notley

NDP Leader Rachel Notley characterized the budget as “high on oil prices and low on support for families and businesses.”

Advertisement

She took aim at the government’s decision to not re-index personal income taxes, AISH and seniors’ benefits, and said the natural gas rebate has a threshold that may never be reached, abandoning Albertans on their own with both natural gas and electricity prices.

“The premier may be celebrating but Alberta families are not back in black,” she said.

Independent MLA Drew Barnes said the budget should have dropped small business taxes to zero, found better savings and efficiencies in government, and meaningfully addressed the effect of inflation.

“The number of families in Cypress-Medicine Hat and Alberta that contact me that can’t afford their groceries, that can’t afford their gas, that can’t afford their utilities — those have real consequences. This government’s disconnected from how the average Alberta family lives,” he told reporters Thursday.

Advertisement

Health gets a boost

While the government is pumping more money into continuing care, increasing health care system capacity, and health care capital projects, it’s still focused on controlling health care spending, with budget increases still below population growth and inflation estimates.

Budget 2022 provides $22 billion for health operating expenses in 2022-23, an increase of 2.4 per cent, or $515 million, from the previous fiscal year, not taking into account about $1.4 billion in COVID-19 contingency costs in 2021-22 and $10 million in 2022-23.

Advocacy groups including the Friends of Medicare and Public Interest Alberta decried the budget’s cuts and the UCP’s plans to invest in privately-delivered health care through its surgical wait time initiative.

Advertisement

K-12 Education remains relatively flat

Up to $8.4 billion from last year’s $8.3 billion, the operating budget for K-12 schools increases funding by 1.7 per cent, or a total of $142 million in 2022-23. That also includes $627 million in both years of “own-source” or money from school board reserves and one-time federal government funding for COVID-19.

Notley said the relatively flat budget won’t support enrolment growth and will mean “our kids will fall further and further behind in school.”

The budget was given kudos by the Canadian Taxpayers Federation for its restraint but, like Notley, called for the UCP to bring back income tax indexing.

“The government deserves credit for beginning to roll back years of government overspending that has wreaked havoc on our province’s finances,” said Kevin Lacey, Alberta director with the CTF.

The Alberta Federation of Labour, however, slammed the budget as a “missed opportunity,” in a news release.

“While a one-off bump from oil and gas revenues is welcomed, Albertans are not seeing the benefits,” said president Gil McGowan.

lijohnson@postmedia.com

twitter.com/reportrix

Edmonton Journal Headline News logo

Edmonton Journal Headline News

Sign up to receive daily headline news from the Edmonton Journal, a division of Postmedia Network Inc.

By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300

Read More

Free weekly Newsletter

A weekly breakdown of forecasts and trends

Enter your contact info to get The Financial Gambits VIP Newsletter for FREE.

We hate spam as much as you, if you dont like it just unsubscribe and we will never bother you again