Ideas

March 4, 2020

Alberta 2020 Budget analysis: A path to balance & prosperity, with some groups & goals left behind

In advance of last week’s provincial budget, in addition to advocating for a competitive business environment, we made a list of 5 Things For the Provincial Budget to Get Right

We did so because we see the budget as more than a list of line items with big numbers. A budget is a signal: it shows what the provincial government values and intends to improve, and its vision for the future. So, now that it’s out and we’ve read through the 234-pager, how does the 2020 Budget stack up against our list? Here’s what we think:

Topline

Budget 2020 is a continuation of the course mapped out by the provincial government. It contains few major new initiatives on either the revenue or the expenditure side but is clearly focused on building a strong economy, creating jobs, attracting investment while maintaining a credible path to fiscal balance. A few topline summary points, Budget 2020:

  • Remains committed to creating a model business environment
  • Broadens vision for Alberta’s future including energy, innovation, agriculture and more
  • Keeps Alberta on a path to fiscal balance with reasonable economic policies

Economic Opportunity on Climate Policy

The specifics we were looking for on climate change in the 2020 Budget were largely lacking.

In our view, the provincial government needed to aggressively enable and support efforts to address climate change as the world shifts to a lower-carbon future. We see strategic action as not only a necessary step in addressing climate change but also an incredible opportunity to add value and economic sustainability to the province by becoming the preferred destination for low-carbon capital investment. This is about more than just an opportunity to ‘re-establish Alberta’s reputation in global energy’ but rather is an opportunity to be a true leader on a global scale, advancing both climate and economic goals for Alberta and the world.

There are many steps the government could have taken, ranging from a clear commitment to a net-zero target for the province to introducing new policies and programs designed to support that goal. Perhaps the biggest opportunity for action addressed in the budget is the Technology, Innovation and Emissions Reduction (TIER) program which charges high greenhouse-gas emitters at $30 per tonne, then uses this revenue to support the clean development of Alberta’s resources.

The budget notes that the TIER program will collect about $1.37 billion over the next three years but does not provide details on how those funds will be distributed. The 2019 Budget notes that the first $100 million in TIER revenues and half of the remaining funds will be used for emission reduction projects. Most of the rest is earmarked for deficit reduction. A plan to devote more TIER revenues to emissions reduction would have been a simple way to signal a stronger commitment to address climate change in a way that boosts the Alberta economy.

In a full analysis of Budget 2020, @bizcouncilab says that while the provincial government's budget puts Alberta on a path to balance, underlying assumptions are optimistic & priorities for people & environment are largely unaddressed.… Click To Tweet

Re-index AISH

This was an opportunity for a small change with a big impact. Unfortunately, the 2020 Budget continues to pause indexing for Assured Income for the Severely Handicapped (AISH) which is a program that provides financial support and dignity to some of the most vulnerable in our society. As the cost of living increases, the benefits will not increase accordingly to compensate, meaning the value of benefits to qualifying individuals will erode over time. The cost of living typically increases by about 2% per year so, over a 4-year period, this could have a meaningful impact on affording basic needs.

A competitive tax environment

“Open for business” is a phrase you’ll see throughout the budget and, by many indicators, Alberta is. The budget emphasizes that a trifecta of competitive taxes (Alberta’s corporate tax rate will be the lowest in the country and lower than all but six states in the US as of 2022); a decrease of ‘red tape’ regulations; and a young, skilled workforce will be the panacea for a thriving economy and a balanced budget.

This tax cut entices businesses to open or invest in Alberta, and it will help to drive prosperity growth for Albertans by increasing employment and wages. If business responds as much as the budget projects – and has been forecast by our special advisor Jack Mintz – this will increase the government’s revenues enough that that, combined with constrained spending, the deficit will be eliminated by 2022-23.

As broad-based tax cuts take time to ‘flow through’ the economy (e.g. the time for a company or business owner to move their operations to Alberta), the budget targets 2023 as the year when the economy reaches full employment – the point in time when the only people unemployed are those in transition between jobs.

It should be noted that the budget bakes in optimistic assumptions for the most volatile industry of the economy including

  • improved market access as pipelines come online
  • increased oil sands production
  • increased oil prices and exports

It’s also worth noting that the province’s economic forecasts are taking place in a global environment that carries elevated risks. Recent equity market volatility and concerns about the spread of coronavirus are just two factors that could greatly impact global economic growth and, by extension, the outlook for the Alberta economy. In fact, we are seeing it already.

READ MORE: A competitive tax environment helps build healthy economies

A plan to address youth unemployment

The 2020 Budget recognizes a very big concern of ours: the impact of the economic downturn on youth employment, especially for young, male Albertans. However, while the government expresses concern about this issue, much of its implicit solution rides on attracting new businesses and investment to the province.

There are some targeted programs like the Alberta Advantage Immigration Strategy, which is relatively small in scale, and the Skills for Jobs initiative, which lists ‘reskilling labour’ as one of many components of the initiative. For the most part, however, the policy emphasis is on accelerating economic growth rather than more targeted measures.

Given what is at stake when young adults remain unemployed, without hope and detached from society, we have started a dialogue with the government to highlight the dire urgency of this issue and to determine what needs to be done to ensure the foundation is set for Alberta’s next generation to thrive.  

Expand the Alberta economy

We mentioned that an underrated policy tool is the opportunity to build Alberta’s “brand” by setting the tone in the budget through support for new and emerging sectors in addition to established ones.

This tone was seen throughout the budget. For instance, the budget states that “technology is, increasingly, a foundation of Alberta’s economy” and acknowledged how technology is interconnected with our energy sector.

More broadly, the budget shows an intent to expand the economy through the continued support of Alberta Innovates with $184 million allocated to investment opportunities within artificial intelligence, quantum computing, digital health, and agricultural innovation in addition to natural gas and oil. However, with fiscal prudence at the top of its priorities, the government did not offer any new funds to support initiatives in these areas. With the Innovation Capital Working Group reporting back to the government shortly, we’ll be pushing for their recommendations to be seriously considered. (BCA President Adam Legge is the Co-Chair of that working group.)

The budget notes that a barrier to growing emerging industries is finding people with the right skills and identified the new Alberta Advantage Immigration strategy as a solution. Connecting with our unemployment concerns, we see the reskilling of Albertans who are currently unemployed or underemployed as an additional strategy that should be promoted in order to meet the growing needs of emerging industries.  

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