So much for those days: grim years ahead

Alberta’s debt soars into stratosphere; Kenney government opts to hold line on spending, won’t cave in to pressure for sales tax

Gary Park

for Petroleum News

In the midst of the annual Calgary Stampede, then-premier of Alberta, Ralph Klein, wearing a cowboy hat, held high a sign declaring “Paid in Full.”

That was his signal Alberta had paid off its remaining debt of C$3.7 billion, making it the only jurisdiction in the western world to enter such a heady financial realm.

“Never again will this government or the people of this province have to set aside another tax dollar on debt,” Klein declared.

The claim was made in 2004, just 17 years ago, which to Albertans might as well be a lifetime ago.

At some point in the new fiscal year, the province’s debt will rocket past C$100 billion on its way to a projected C$116 billion in 2022 and likely C$132 billion-plus by 2024. Finance Minister Travis Toews is willing to bet that Alberta will post a balanced budget before 2027.

Annual debt-servicing costs are rising quickly, on track for more than C$3 billion. That will exceed Alberta’s estimate for resource royalty revenues in 2021-22 of C$2.9 billion, once the comfortable underpinning of extreme wealth in Canada’s richest province.

Growth of debt

None more so than the four-year administration of the socialist New Democratic Party administration of Premier Rachel Notley, who was at the helm when the debt climbed from C$11 billion in 2015 to C$63 billion. In a desperate attempt to retain power in 2019, she pushed annual spending to about C$53 billion, buying off labor unions that are now bracing for a contract showdown with the current government of Premier Jason Kenney.

Under Klein there was a broad-based budget slashing, reducing per-person program spending to C$7,447, a level that has since almost doubled.

All the while, Alberta was feeding Canada’s gross domestic product, making a gross contribution through individual and corporate taxes of C$512 billion between 2007 and 2018 and a net contribution to federal government finances of C$252 billion.

Sideswiped

In a belated rescue mission, the government of Kenney announced Feb. 25 that it would freeze spending, while still projecting an C$18.2 billion deficit for 2021-22, down a mere C$2 billion from the current budget year.

Notley, now leader of the Alberta opposition party and holding fast to her belief that the province can spend its way out of trouble, said Kenney’s budget curb will amount to severe cuts to services, including health care and education.

She said the Kenney government has failed to account for population growth or inflation over the next several years.

But neither she nor Kenney have agreed it is time for Alberta to join Canada’s other nine provinces and impose a sales tax.

In a pre-budget report, the Business Council of Alberta - a group of 90 chief executive officers - called for the adoption of a 3% tax and the reintroduction of a provincial carbon tax of C$50 per metric ton.

In his only hint of bending to the pressure, Kenney has said he would not impose a sales tax without a referendum, pointing to the 2023 election as earliest time for such a vote.

The new budget relies heavily on Alberta’s oil price forecasts that are below private-sector projections. It assumes West Texas Intermediate will average US$46 a barrel in the coming year, increasing to US$56.50 by 2023-24.

Over the near term, Alberta is counting on crude oil revenues rising from C$1.98 billion in the fiscal year that ends on March 31 to C$2.86 billion in 2022 and C$5.87 billion in 2024, with the oil sands contribution growing from C$1.1 billion to C$3.89 billion over the same period. Crude oil revenues are expected to rise from C$418 million to C$926 million, with natural gas edging up from C$296 million to C$707 million.