The United Conservative Party (UCP) ran on an election platform that promised major changes to some provincial taxes, particularly the provincial corporate income tax rate and the consumer carbon tax, and to government spending in several ministries. Budget 2019 is the UCP's first budget and it sets out much of the government's four-year plan.
Below are some of the key takeaways and impacts the budget will have on the provincial economy and Albertans.
Deficit, net debt, and debt interest charges
Budget 2019 estimates the deficit for the current fiscal year will be $8.7 billion, which is $2 billion more than the $6.7 billion deficit last year. The UCP hopes to reduce the deficit in chunks. Budget 2019 projects a deficit of $5.9 billion in 2020, $2.6 billion in 2021, and a small projected surplus of $0.6 billion in 2022.
These fiscal projections depend on a lot of assumptions, perhaps the biggest of which is the hope that three new pipelines will be built and start operating in the next four years: Line 3 by early 2021, the Trans Mountain Pipeline expansion by late 2022, and Keystone XL in early 2023 (see page 37).
Interestingly, the UCP government is not expecting the price of oil to increase much over the next four years, and oil and gas investment for 2019–2023 is expected to remain at about half the 2014 peak (see Chart 13 on page 40).
Alberta had more assets than debt from 2000 to 2015. In 2007, Alberta had a bit more than $35 billion more assets than debt. The former Progressive Conservative government then ran a series of deficits, so by 2014 Alberta had slightly more than $13 billion in assets in excess of its debt. In 2018, the last year of the Alberta New Democratic Party (NDP) government, Alberta had about $27.5 billion in debt in excess of its assets.
Alberta's net financial debt will continue to grow under the UCP, with Budget 2019 estimating that the province will have $46.4 billion more debt than assets by 2022.
In the NDP's last year in government, Alberta's annual debt interest charges were $1.971 billion, an increase from $0.776 billion in 2015. The UCP's budget will see Alberta's debt interest charges increase to $3.013 billion by 2022.
Budget 2019 continues the ANDP practice of inflation-proofing the Heritage Fund. For example, the Heritage Fund is forecast to increase from $16.2 billion in 2019 to $16.5 billion in 2020. The estimated 1.85% increase is roughly equivalent to the anticipated inflation for this year.
The UCP assumes that Line 3, the Trans Mountain expansion, and Keystone XL will all be built and that there will be no delays to current construction schedules. Based on these assumptions, the government projects significant growth in bitumen royalties of 28% in 2021 and of 37.2% in 2022. These assumptions by the UCP seem optimistic given past pipeline delays and ongoing opposition to these projects.
Taxes and fees
Budget 2019 pretends Albertans will be living without a carbon tax on transportation and home heating fuels, but the province will have the federal carbon tax of $30 per ton of carbon pollution imposed on it on January 1, 2020.
The UCP is cutting corporate income taxes by 33%—from a rate of 12% to 8%—over the next four years. The UCP asserts that this tax cut will result in a net loss of $2.4 billion to government revenue over four years (page 65), while the ANDP opposition estimates government revenue could be reduced by as much as $4.7 billion.
The UCP is hoping that these large reductions to the corporate tax rate will spur private sector investment and "help offset the pullback in government spending" (page 35).
The UCP is pausing the indexing of Alberta's level of personal income tax exemption, which has been indexed since 2001 (Albertans don't pay income tax on roughly their first $19,000 of annual income because of the exemption). This means Albertans will pay more of their income in provincial tax this year and each year the pause to indexation continues. In other words, the UCP is giving a significant tax cut to large corporations, and one of the ways it intends to make up the difference is by making all tax-paying Albertans pay more in personal income tax each year. The budget demonstrates this expectation by assuming that personal income tax will account for an increasing proportion of government revenues, even as other revenue sources remain relatively stable or shrink from 2019–2022.
The UCP is also increasing the tax on various tobacco products and plans to start taxing vapes in 2020 (the tax on a carton of cigarettes went up $5 today,a 10% increase). The UCP is also increasing various user fees related to motor vehicles, land titles, and the province's museums.
The UCP also plans to start taxing short-term rentals, like Airbnb, starting next year. The 4% levy is the same tourism levy that applies to hotels, however, the legislation with details about this plan will not be tabled until 2020.
The UCP is eliminating tuition and education tax credits and the post-secondary education tuition cap, meaning tuition could rise as much as 7% in each of the next three years (page 75), making post-secondary education less accessible.
Total expenses and operating expenses
Total government expenses in 2022 are forecast to be roughly equal to expenses in Budget 2018 (the ANDP's final budget). However, once inflation and population growth for 2018–2022 is accounted for, the UCP is actually planning a cut of about 18% of total government spending over four years. Operating expenses are forecast to be 2.8% less in 2022 compared to 2018. When combined with inflation and population growth, this amounts to a functional cut of over 20% over four years.
There will be major cuts to all of the large government ministries over the four years, including:
- Health care will be increased 1.3% by 2022, which is a cut of about 17% when inflation and population growth are taken into account.
- K-12 education funding is frozen over the four years, which is a 18% cut when inflation and population growth are taken into account.
- Post-secondary education will be cut 11.8% over the four years, which is about a 30% cut when inflation and population growth are taken into account.
- The budget for the Ministry of Children's Services is increasing 15.2% by 2022, but this is actually a cut of 2.9% when inflation and population growth are accounted for. Accounting for inflation and population growth, over four years spending on child care will decrease by 8.1%, spending on child intervention will decrease 9.7%, and spending on early intervention services for children and youth will decrease 30.5%.
- The Ministry of Seniors and Housing will have its budget frozen for the four years, which is a 18% cut when inflation and population growth are taken into account.
- The Ministry of Culture, Multiculturalism, and Status of Women will be cut by 33% over four years, which is a 51% cut when inflation and population growth are taken into account.
- In the Ministry of Labour, the UCP is eliminating the Summer Temporary Employment Program (STEP), a long-standing program that helps youth find summer employment, after the 2019 program year (page 108).
Public Sector Jobs and Compensation
The UCP plans to cut at least 7.7% of public sector jobs over its four-year mandate. If a public sector union is awarded wage increases for its members through the arbitration process, the budget warns "Further savings may be necessary" (page 13). In other words, public sector job terminations are likely to be larger than the UCP is claiming.
The budget lists service workers, correctional peace officers, policy analysts, physicians, nurses, and teachers as jobs that the UCP government considers to be overpaid. The budget provides specific plans for decreasing labour costs associated with nurses and physicians. In order to reduce costs, the government will expand the scope of practice for Licensed Practical Nurses (LPNs) to include some work that is currently done by Registered Nurses (RNs). LPNs are typically paid less than RNs, meaning that the government intends to get the same work at a lower cost, while risking RN jobs.
In addition to outlining a plan for renegotiating physician compensation rates, Budget 2019 also mentions limiting the growth in the supply of physicians. This move is concerning given that Albertans in many communities struggle to find family physicians accepting new patients, and could result in further pressure on urgent and emergency care.
Finally, the September 3, 2019 MacKinnon report suggested cost savings in health care through "alternative service delivery," presumably a euphemism for privatization. The 2019 budget responds to this call by indicating that the UCP government and Alberta Health Services (AHS) are exploring reductions in spending by seeking private contracts ("outsourcing") for linen and "other services," and reducing compensation "within the parameters of the existing collective agreements" (page 84).
Capital and infrastructure spending
Budget 2019 states the province spent on average $7 billion per year on infrastructure in the last decade. The UCP's capital plan averages $6.05 billion per year over its four-year mandate, for an annual cut of 13.6%. Accounting for inflation would push the cut to capital expenditures to over 20%.
Some impacts include:
- delaying the opening of the new Edmonton hospital several years to 2030 (page 30),
- deferring the proposed Child and Adolescent Mental Health building at the Royal Alexandra Hospital (page 131), and
- cutting highway maintenance by 16% (page 112), which is a real cut of 34% when inflation and population growth are taken into account.
The UCP government asserts that it is striking a "balance between environmental protection, and economic growth," however, it is difficult to see how it plans to protect the environment, much less address risks and hazards spurred by the climate crisis (page 104). For example, the Ministry of Environment and Parks faces steep cuts, including halving the budget for enforcement (from $14 million in 2018 to $7 million in 2019, and going forward), and an inflation-adjusted cut of 12.5% in emissions management (from $231 million in 2019 to $206 million in 2020 (plus inflation of 1.7%), with further cuts projected for 2021 and 2022).
The UCP government studiously avoids attributing risks associated with "weather and natural disasters" (page 20) to climate change, and cuts funding to climate change line items in most ministries, including under the Ministry of Energy (which faces dramatic cuts to the climate change portfolio from $103 million in 2019 to a mere $29 million in 2020—a 73.5% inflation-adjusted cut), and the Technology Innovations and Emissions Management fund. The government is also cutting Energy Regulation spending from $243 million in 2018 to $225 million in 2019, and projects cutting a further $23 million for the 2020 fiscal year.
An optimistic economic outlook
The economic outlook projected in Budget 2019 is either very hopeful or simply unrealistic. In a series of data tables in the Economic Outlook section of the budget (pages 23–60), the UCP predicts Alberta's economic growth will be larger than the growth rate predicted by averaging the forecasts made by Canada's major banks and other economic forecasters. For example, the UCP is projecting Alberta's economic growth will be 3% in 2022 and 2023, but the average of the banks and other forecasters is 2.4% and 2.1%, respectively (page 57).
The UCP's forecast of job growth in the province is also optimistic. Economic forecasters on average predict Alberta's growth will be 1% in 2020, but the UCP is hoping for job growth of 1.6% (page 59). The UCP is placing a lot of faith that its corporate tax cut will spur investment across the economy and that oil and gas employment will pick up with the anticipated pipeline construction projects and completions.
Overall, health care funding will be increased 1.3% by 2022, which is actually cut of about 17% over four years when inflation and population growth are taken into account. The 2019 budget also promises modest increases in health spending in a couple areas including $100 million in mental health and addictions, and an additional $40 million in opioid response funding. The budget makes no mention of harm reduction or supervised consumption sites, a concern for future costs associated with the opioid epidemic, including blood-borne diseases and overdose deaths.
Rather than advocating for cost saving on pharmaceuticals through pharmacare, the UCP government asserts that it will reduce government expenditures on prescription medications through limiting drug benefit coverage with the Maximum Allowable Costs and Biosimilars Initiative.
The UCP government's 2019 budget promises direct cuts to post-secondary education funding, with a 5% cut in 2019, another 2.8% cut in 2020, a 2.2% cut in 2021, and a further 2.3% cut in 2022. When compounded with population growth and inflation, these reductions amount to a cut of about 30% over the next three years.
Post-secondary institutions will face different reductions to the Campus Alberta Grant funding, with reductions from 2018-19 to 2019-20 ranging from a high of a 7.9% reduction to MacEwan University to no reductions for four faith-based institutions in the province.
As a way to begin to fund some of these dramatic cuts, the UCP government is removing the tuition cap to allow for 7% institution-wide increases in tuition each year, meaning student tuition will almost certainly rise at most institutions. At the same time, the 2019 budget indicates cuts to student aid from $232 million in 2019 fiscal year to $207 million in 2020.
The budget also indicates that funding for post-secondary institutions will be outcomes-based, hinging on accountability, student service delivery, job creation, finding efficiencies, and increasing enrollment. Post-secondary funding was previously based on enrollment. Overall, the budget cuts will result in decreased staff, and put smaller programs and institutions at risk.
As British Columbia makes moves to implement the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), Alberta will move to cut funding for the Ministry of Indigenous Relations by an inflation-adjusted 27% over four years. Most areas of the Indigenous Relations Ministry face cuts, with the notable exception of the First Nations Development Fund and related funds for the Aboriginal Indigenous Opportunities Corporation, and the Indigenous Litigation Fund. Funds in these areas are intended to support Indigenous communities seeking oil and gas development.
Consultations and land claims funding will decrease from $28 million in 2019 to only $17 million by 2021. The 2019 budget also indicates that climate change initiatives housed in the Ministry of Indigenous Relations will be eliminated completely.
The 2019 budget proposes only modest increases to continuing care budgets (1.5% from 2018 to 2019, then maintaining that amount for 2020), not reflecting inflationary pressures of 9.8% over 2019–2022 and increased need as seniors live longer, and with more complex care needs.
Budget 2019 also indicates that seniors' benefits will no longer be indexed to inflation, an effective cut to support for low-income seniors as the cost of living increases. The budget also ends drug coverage for non-senior dependents under the Alberta Seniors Benefit Drug Program, and will explore introducing means testing for the program.
The 2019 budget indicates that the UCP government will phase out the Alberta Child Benefit in 2020, replacing it with a new Alberta Child and Family Benefit. The differences between the two benefits are unclear, but spending on the latter will increase year over year, from $220 million in 2020 ($226 million when combined with the amount allocated for the Alberta Child Benefit while it is being phased out) to $303 million by 2022.
The 2019 budget signals effective cuts to Assured Income for the Severely Handicapped (AISH), Income Support, and similar low-income and special needs supports by no longer indexing them to inflation. Given Alberta's relatively high cost of living, maintaining support levels that already subject recipients to poverty or near-poverty living conditions will ensure that they have a harder time meeting ends meet over the next few years.
Compounding pressures on low-income people, the 2019 budget indicates cuts to the Alberta Social Housing Corporation of $12 million from 2019 to 2020, and an additional $11 million from 2020 to 2021. The low supply of affordable housing and affordable rental in Alberta, particularly in Edmonton and Calgary, mean that these cuts put low-income families at risk of precarity induced by high housing costs.
The Ministry of Justice will also see cuts of $58 million from 2019 to 2020. A concern for regular Albertans, resolution and court administration services will see cuts year over year from $195 million in 2019 to $157 million in 2022—a hit to dispute resolution services.
The UCP government's inaugural budget is unsurprising, given its consistent promises of austerity and "sacrifices." The government considers itself to have a "strong mandate" to enact sweeping cuts now, and over the course of the next three budgets. However, the government has not yet delivered on other promises of higher employment rates and expanded resource revenue, and, as stated above, its economic projections are, at best, optimistic.
The projections for upcoming budgets show that funding cuts—both direct cuts and indirect cuts facilitated by not matching funding to population growth and inflation—will likely continue. At the same time, avoiding addressing the climate crisis, and needs associated with education, health, and housing, puts Albertans at risk of suffering displacement, poverty, and ill-health.
As Albertans begin to feel the pinch of direct cuts to services many of us deem vital, including health care and education, the UCP will likely remind us of its "strong mandate." However, that mandate is four years long. If this government does not follow through on its promises to maintain front-line services while improving the economy, Albertans can, and should, demand better.