Today’s mid-year fiscal update shows continued improvement in Alberta’s finances. The provincial deficit for this year is now forecast to be just one-third of what was originally expected in the 2021-22 Budget, and the three-year trajectory now shows a path towards greater balance.
The improving fiscal picture over the medium term is largely due to a faster-than-expected recovery of the energy industry, with resource revenues bringing in almost three times more revenue than initially forecast.
Beyond this, Alberta’s broader economic recovery has been stronger than anticipated, a credit to the can-do entrepreneurial spirit of Albertans. While there are still gaps in hard-hit sectors, and long-term unemployment remains an issue, overall employment has now fully recovered to pre-pandemic levels. Alberta is seeing growth and investment in sectors like technology, petrochemical and food manufacturing, transportation and film & television. As a result, overall corporate income tax is up around $1 billion.
On the expense side, spending is forecast to be about $2 billion more than anticipated. While health, education, and social services spending is expected to be in line with budget estimates, severe drought conditions led to an increase in spending for crop insurance and other agricultural supports.
Longer term, the government is forecasting and implementing plans to bring costs in line with other large provinces, an effort which should be commended.
However, all this serves to underscore that Alberta still has a deep structural challenge with our revenue model. While this fiscal update shows the benefit of positive commodity price upswings, it doesn’t yet account for the recent downturn we’ve seen in oil prices. A drop of $10 in the price of oil can make a difference of $2.3 billion in our provincial budget.
The provincial government has indicated that they may be establishing an effort to look at Alberta’s revenue model, and we feel this work is essential to set up Alberta for long term competitiveness and fiscal sustainability. We look forward to the work of this panel and offer the Business Council’s help in contributing to it.
Our policy and economics work has shown that it is possible to reimagine Alberta’s revenue model in a way that doesn’t add additional layers of cost, and instead can be more stable, sustainable, and competitive.