Insights & Analysis

March 2, 2022

A Year for the [Balanced] Books: Red ink turns black

Last week, the provincial government tabled the fourth budget in its term and the second since COVID hit. In contrast to Budget 2021, which focused on getting the province through the pandemic, Budget 2022 switches gears from pandemic response to economic growth and recovery.

With this budget, the Alberta government fulfills a key campaign promise—to balance the books during its first mandate. At this time last year, the government was targeting an $11 billion deficit for 2022-23 but is now on track to reach a modest surplus of $511 million. This is the first balanced budget since 2014-15 and indicates better times ahead for our province.

To what or to whom can we thank for our much-improved balance sheet? Well, improvements were made on both the spending and revenue side of the ledger. Though spending is up a modest 6% from what was targeted last year for 2022-23, the government has made strides in lowering its spending trajectory and bringing per capita costs in line with other large provinces.

However, much of the story resides on the revenue side. Total revenues for 2022-23 were a whopping 32% higher than last year’s expectations. As is often the story in Alberta, we can thank much higher-than-expected oil prices for this boost. High oil prices contributed to a 200% increase in non-renewable resource revenue and played a smaller role in a 62% increase in corporate income taxes. That said, it’s important to note that revenue gains were realized in nearly every other category, including personal income taxes and federal transfers.

But budgets are more than a numbers exercise in revenue and expense line items. They also lay out the policy priorities governments will pursue in the near future, and this is what we are digging deeper into today.

What were we looking for?

In advance of the budget, the Business Council of Alberta published a short paper outlining our priorities for February 24th. You can find that paper here.

In it, we highlighted five areas that we believe need to be key priorities for this government as we move from pandemic response to economic growth and recovery. With last week’s budget release, we analyze how well it responds to our submission and what the budget means for Albertans. 

Fiscal Pathway: A stronger, more resilient, and more competitive revenue model

Alberta is in a vastly different fiscal situation today than we were 12 months ago. High oil prices have propelled a quick and unexpected turnaround in the province’s financial outlook, with resource revenues approaching record highs. This has had a massive positive effect on our short-term finances. Unfortunately, because this turnaround is largely due to factors outside of our direct control, this short-term fortune isn’t a long-term solution. Alberta’s reliance on volatile and unpredictable resource revenues exposes us to fiscal risk and remains a central issue for this province.

Weathering 45% swings in year-over-year revenues as oil prices fluctuate is not a sustainable path forward. We cannot rely on the good years to get us through the bad ones. That’s not to say that oil and gas won’t be a major contributor to Alberta’s economy in the future. On the contrary, oil production is expected to remain higher than 2021 levels until at least 2046. But in the face of a looming energy transition, we believe it is time to get off the resource revenue rollercoaster and create a more stable and predictable tax system.

As such, we were hoping to see the province announce the creation of a panel to explore a reimagined revenue model—similar to the MacKinnon Blue Ribbon Panel on expenses—that would work to build a more resilient and competitive fiscal model. Though we were encouraged by the successful use of fiscal anchors to guide decisions, there was no mention of the need for a new revenue model. We continue to urge the government to focus on this critical component of Alberta’s future fiscal health.

We were also hoping to see the personal income tax (PIT) thresholds re-indexed to reflect rising inflation and wages over time to end the practice of bracket creep. PIT thresholds have not been updated since 2019 and have cost taxpayers between $106 and $332 between 2020 and 2022 depending on income. In an environment with record inflationary pressures, we believe the government should end this hidden tax and allow Albertans to keep more money in their pockets. We were disappointed not to see this reflected in Budget 2022 and will continue to look for re-indexing PIT in future budgets. 

Jobs: A coordinated and strategic approach to workforce development training that focuses on long-term unemployment

Critical to building a better future for Albertans is addressing our long-term unemployment challenge. On this priority, we were encouraged to see a lot of movement from the Alberta government.

In this budget, the government launched its Alberta at Work strategy, a combination of existing programs and new initiatives designed to create pathways to work for Albertans. Though Alberta’s labour market has broadly recovered from the impact of COVID-19, gaps remain. Rates of long-term unemployment stubbornly remain higher than the Canadian average. And disadvantaged groups—women, Indigenous and racialized individuals, and individuals with disabilities—still face additional barriers. We were glad to see these problems acknowledged and addressed in the budget.

Under the Alberta at Work umbrella, the budget allocates $600 million over three years to help Albertans develop skills and find employment. Notably, $171 million is provided to expand post-secondary enrolment in specific high-demand programs, creating an additional 7,000 spots in technology, finance, energy, health, and aviation programs. There is also money specifically allocated to training opportunities for women, Indigenous Peoples, and low-income earners. BCA welcomes this initiative. Funding to help post-secondary institutions remain responsive to labour market needs is key to creating an attractive workforce. To support the success of the Alberta at Work Strategy, $15 million over three years is dedicated to collecting, analyzing, and disseminating labour market information. This information will help students, employees, and employers make timely and informed labour market decisions.

BCA was looking for specific improvements to be made to the Alberta Jobs Now (AJN) program and Canada-Alberta Job Grant (CAJG) to create additional incentives for businesses to train and hire unemployed Albertans.

These adjustments were not made directly, but that said, the budget did delineate $20 million in 2022-23 and $10 million in 2023-24 to create job opportunities specifically for unemployed Albertans. We recognize that other programs could be equally effective at targeting this population, and we were pleased to see a focus on the long-term unemployed in Budget 2022.  

And finally, the government did not consolidate or streamline workforce development initiatives under one central ministry, but they did fold these initiatives under a single strategy—Alberta at Work. We hope this indicates greater coordination and a strategic vision for workforce development across the province.

Climate: A plan to position Alberta as the centre of low-carbon innovation

Canada cannot achieve its climate goals without Alberta. While it will be challenging to decarbonize Alberta’s heavy-emitting industries, our province has tremendous opportunities to become the centre of low-carbon innovation within Canada.

One key area of opportunity in Alberta is in producing low-carbon hydrogen. Low-carbon hydrogen builds on Alberta’s unique geological and industrial structures and gives us the opportunity to play a major role in supplying the world with clean fuel. We want to see Alberta become a world leader in hydrogen production, transportation, and use.

As such, we were pleased to see a two-year $10 million capital spending investment for the Clean Hydrogen Centre of Excellence to support hydrogen innovation and technology in the province. This global Centre of Excellence is a positive step in diversifying Alberta’s economy while building on its existing strengths. We hope to see continued investment in hydrogen beyond this $10 million in future budgets as we believe considerably more support will be needed to fully capture hydrogen’s potential in Alberta.

Another essential low-carbon initiative is carbon capture, utilization, and storage (CCUS). Our broader climate goals cannot be reached without the commercial-scale implementation of CCUS.  

Vast investments from federal, provincial, and industry partners are required to advance CCUS in Alberta. In this budget, $305 million over four years is available for future carbon and capture projects–an allocation within the Technology Innovation and Emissions Reduction (TIER) Fund.

While all supports are welcome, we believe more needs to be done to meet emissions reduction goals and to ensure that Alberta becomes a global leader in this space. Therefore, we would encourage the government to allocate additional TIER revenue to CCUS projects and work collaboratively with the federal government to jointly provide adequate funding to enable significant new CCUS investment across the province.

Lastly, we were hoping to see the provincial government commit to pricing carbon in alignment with the federal government. An unequivocal statement from the provincial government on this subject would help provide Alberta businesses with the certainty they need to proceed with significant new climate-related investments. The provincial government also did not repatriate the federal fuel tax, leaving control of this revenue with the federal government rather than with Alberta. We will continue to press the advantages of repatriating the fuel tax and hope to see this reflected in a future budget.

Innovation: A strategy to support Alberta’s fast-growing tech sector

Alberta’s burgeoning tech sector offers tremendous growth opportunities for the province and has built considerable momentum in recent years. We applaud the Alberta government’s commitment to supporting the industry through programs like the Accelerated Tech Pathway, which provides a fast track to permanent residence for skilled tech professionals who want to live and work in Alberta.

As mentioned, Budget 2022 made additional investments supporting in-demand tech training and education—$171 million to expand enrollment in areas including technology and $15 million to enhance apprenticeship programs for emerging technologies. These are important investments as demand for tech is already higher than the labour market will supply.

But the government’s most notable investment for the tech sector is $73 million over three years to support the Alberta Technology and Innovation Strategy (ATIS). Over half of this investment is earmarked for quantum computing and innovation. The strategy’s vision is for Alberta to become an internationally recognized hub for technology and innovation. BCA strongly supports this new initiative. The creation of ATIS is a positive step forward in supporting Alberta’s growing tech sector and will be a key component of preserving and enhancing economic diversification, productivity, and competitiveness in the province.

Ahead of the budget, we suggested the Alberta government adopt two recommendations from the Innovation Capital Working Group report, including establishing an Advisory Panel on Technology and Innovation with the premier and creating an Alberta Venture Capital Investment (AVCI) Fund. While we did not see these recommendations reflected in the 2022 budget, we encourage the government to consider them for future years to further support Alberta’s tech sector.

People: A commitment to prioritizing health care capacity

In its 2021 budget, the provincial government included $2.5 billion in contingency amounts for disasters, COVID-related health care spending, and recovery initiatives. While public health restrictions are currently easing and lifting across the world, the future of the pandemic is uncertain, and, as we’ve seen in the past, things can change quickly. Given this continued uncertainty, we were hoping to see an extension of the COVID contingency in the budget. In Budget 2022, we were pleased to see that a $1.75 billion contingency was included—$1 billion dedicated to disaster and emergency assistance and $750 million of which is set aside for the province’s continued COVID response. We applaud this prudent and forward-thinking fiscal line.

Further, we were also encouraged by the focus on increased hospital capacity in the coming years. Budget 2022 included an investment of $100 million per year to expand health care capacity permanently. This investment will provide new intensive care unit beds and ensure our health care system can respond to future pandemics. Though perhaps even more critical to our health care system’s ability to care for Albertans are health care professionals. That is why we were pleased to see $90 million per year dedicated to attracting new family physicians to rural and remote communities. Together, these investments will ensure that, as the health care system catches up on the backlog of surgeries and procedures, Albertans have continued access to high-quality health care.

Conclusion

We were pleased to see the government capitalize on Alberta’s strengthened fiscal position by investing in many of the areas we identified as priorities, including jobs, education, and skills. Overall, Budget 2022 brings much-needed optimism to the province as it makes important investments in our future.

However, some areas of work still remain, including the tough job of re-imagining a revenue model and working collaboratively with the federal government and industry partners to ensure Alberta’s low-carbon tech solutions can get off the ground.

join the movement

Sign up to stay updated on our work and join the movement toward a better Alberta for all.

 

In the spirit of truth, reconciliation, and respect, we honour and acknowledge the lands upon which we live and work as guests, including the traditional territories of the First Nations in Treaties 6, 7, and 8 and the citizens of the Metis Nation of Alberta. We thank the First Peoples of this land, which we now call Alberta, for their generations of stewardship of the land, and we seek to walk together in the spirit of truth and reconciliation to build a shared future for all in Alberta.

Ⓒ Copyright Business Council of Alberta | Whistleblower Policy

Share This