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2017 Alberta Budget Update

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Edelman Canada shares highlights from Alberta Finance Minister Joe Ceci’s 2017 Budget. To learn more about Edelman Canada, please visit www.edelman.ca.

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2017 Alberta Budget Update

  1. 1. Edelman Calgary | #220 903 – 8th Avenue SW | Calgary, AB T2P 0P7 | 403 817 0620 The Alberta economy has been hit hard in recent years with a deep recession, slow recovery, and low oil prices. Albertans are becoming increasingly unhappy with the state of their province, and the NDP government is consistently running third in public polling. Against this backdrop, the Alberta government has tabled a budget that includes a $10.3 billion deficit, and a debt that will grow to $71.1 billion by 2019-20. For Albertans, that means $51.1 billion in new provincial debt has been added since 2015. Getting public spending under control in the near-term won’t be easy, as public sector compensation accounts for roughly 50% of the budget, and many of the contracts that have forced those costs were negotiated years ago with built-in, annual raises. Reigning in the public purse will require staunch leadership and courage in the face of steep political consequences moving forward. A recent survey showed that Premier Notley’s personal approval rating has dropped to just 35%, with 56.7% of Albertans disapproving of her leadership. For a province that has grown accustomed to being a model of economic success and political stewardship, this is largely unchartered waters for many, posing new challenges and novel opportunities. Bob Richardson Executive Vice-President & National Practice Lead 416.849.1913 | bob.richardson@edelman.com 2017 ALBERTA BUDGET UPDATE OUR PERSPECTIVE HIGHLIGHTS • Budget 2017 projects a modest economic recovery since the oil price crash two years ago, fueled by growth in exports, increased drilling activity, oil production, and manufacturing. It also projects a $10.3 billion deficit (down from a $10.8 billion forecast in 2016-17). • Though Budget 2017 estimates Alberta’s economy will grow by 2.6% this fiscal year, the province is now projected to be $71.1 billion in debt by 2019-20. • A return to a balanced budget is not expected in Alberta until 2023. • Forecasting oil priced at $55 per barrel and bitumen production ramping up to 2.9 million barrels per day, Budget 2017 lays out revenue projections at $45 billion in 2017-18. • Budget 2017 includes $9.2 billion in health facilities, roads, maintenance, environmental initiatives and other projects under its massive construction, repair and upgrading plan, borrowing $6 billion for capital projects, and a further $6.4 billion to pay the day-to- day bills. This borrowing will bring Alberta’s debt to $45 billion. • Increased infrastructure spending is expected to boost activity and improve productivity, and Budget 2017 earmarks $29.5 billion over four years for infrastructure projects including: $7.6 billion in municipal infrastructure support, $3.1 billion for roads and bridges, and funding for two major road infrastructure projects in Calgary (Airport Trail) and Edmonton (50th Street). • Budget 2017 also includes $14.5 million to hire 35 crown prosecutors and an additional 30 court support staff (in addition to the 15 crown prosecutors currently being recruited) to help address rising court pressures. • To better control spending costs, Budget 2017 offers savings of $200 million in 2017-18 and 2018- 19, and $100 million in 2019-20 by reducing salaries of the highest paid CEOs of 23 provincial agencies, amalgamating or cutting 26 agencies, boards and commissions, and freezing the salaries of political staff and management staff in the Alberta Public Service and agency boards and commissions. • Budget 2017 estimates more than 600,000 barrels per day of new production will help lift real oil exports by 16% over the next two years. In addition, the increase in conventional oil and gas drilling in Budget 2017 is expected to lift overall energy investment by 4.9% in 2017. • The government will also seek intervener status on any legal challenges to the Trans Mountain Pipeline and will continue to work with the federal government and provinces on the Energy East proposal this year. • Budget 2017 provides a detailed look at how carbon tax revenue will be used, and of the estimated $9.6 billion the levy is expected to raise over five years, $6.2 billion will be used to diversify the energy industry. The remaining $3.4 billion will go to supporting households and businesses in adjusting to the new levy through rebate programs and small business tax breaks. • The provincial carbon levy was outlined at length in Budget 2017, and is estimated to raise $1 billion in 2017-18. • The impacts of the carbon levy will vary by family, depending on a household’s energy use and driving patterns, and an estimated six of ten Alberta households will receive a rebate that covers the average cost of the carbon levy: $200 for an adult, $100 for a spouse and $30 for each child under 18 (up to four children). The indirect costs of the carbon levy are estimated to range between: $50 to $70 per household in 2017. • To help businesses adjust to the carbon levy, Alberta’s small business corporate income tax rate was reduced by one third, from 3% to 2% effective Jan 1, 2017, and Budget 2017 estimated the reduction will save small business owners $185 million in 2017-18. ENERGY AND ECONOMY Hon. James Moore Special Advisor, Public Affairs, Edelman Canada 604.648.3401 | james.moore@edelman.com John Larsen General Manager, Edelman Calgary 403.817.0626 | john.larsen@edelman.com
  2. 2. Edelman Calgary | #220 903 – 8th Avenue SW | Calgary, AB T2P 0P7 | 403 817 0620 2017 ALBERTA BUDGET UPDATE EDUCATION HEALTH Budget 2017 was true to a pre-budget promise to keep post- secondary funding predictable and sustainable, increasing the base operating grants by 2%. Surpassing $6 billion for 2017, Alberta’s advanced education expense is the third largest portfolio behind health ($21.4 billion) and education ($8.2 billion). The Alberta Education Ministry spending will jump to $8.2 billion in 2017-18 to accommodate an expected 12,000 more Alberta students, and significant ministry funding will be put towards 24 new and modernized schools across the province. Budget 2017 also includes a 25% reduction of public school fees for K-Grade 12, (an equivalent savings for families of $54 million) that will take effect in the 2017/18 school year, as well as an extension of the tuition freeze in post-secondary institutions for the third year in a row. Of the $29.5 billion over four years earmarked for key provincial infrastructure projects in Budget 2017, $4.5 billion will go towards health care, including a new hospital in Edmonton and long-term care senior’s facility in Calgary. Government spending on health care will increase to $21.4 billion in 2017-18, representing a 5% increase from last year’s health budget. With an added emphasis on community and home care (adding over 1,000 new continuing care beds for communities across Alberta), Budget 2017 includes $31 million in Community and Social Services and Health to support unemployed Albertans during the economic downturn. By signing a new agreement with Alberta’s doctors, Budget 2017 also forecasts a savings of $500 million over two years. CHALLENGES On April 1st, the Alberta government will be begin entering into contract negotiations with many of their supporters at a time when Alberta taxpayers are already tired of deficits, mounting debt and a uncompetitive economy. The government will have to negotiate new contracts with 19,000 paramedics employed by the Alberta Health Services, 28,000 nurses, and 24,000 support-service employees, with others on the horizon thereafter. Meanwhile, former federal Conservative Party colleagues Jason Kenney, the incoming leader of the Alberta PC Party, and Brian Jean, leader of the Wildrose Official Opposition, are openly flirting with a centre-right merger ahead of the next election to defeat the incumbent NDP government. Between growing public angst over the state of the economy, impending labour negotiations that risk NDP core support, and a possible united centre-right alternative, Premier Notley’s NDP government has massive challenges on the horizon as they begin planning their path toward the next election, expected in May, 2019. STAKEHOLDER REACTIONS “As our economy recovers, we will continue to bring the deficit down to balance, and we will do so without sacrificing the supports and services families need.” - AB NDP – Treasury Board President and Finance Minister, Joe Ceci “Albertans will be paying for this budget for years to come.” - Wildrose Party – Opposition Leader, Brian Jean “They haven’t even slowed down, and now they are taking Alberta over the fiscal cliff.” - Progressive Conservative Party – Interim Leader, Ric McIver “What businesses mainly want is for government to not make it any harder to survive in these challenging times and this budget shows us there is clearly no plan to make it easier.” - Calgary Chamber of Commerce – CEO, Adam Legge

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