Alberta Budget 2021: 21 Things You Should Know
The Way We Were
The Before Times
When Jason Kenney was elected premier in 2019 the world was a very different place. He hoped to preside over an investment boom, spurred by new pipelines, further development of the oil and gas sector, reduced red tape, and lower taxes. Albertans might not be happy about spending reductions or privatizing government services, but they would accept them because the economy in this scenario would be doing well. Albertans would be prospering, and prosperity usually equals popularity. The budget in turn would return to balance over four years. Then along came a bus named Covid-19.
The COVID-19 Times
Since Covid just about everything that could go wrong has gone wrong. Oil prices collapsed to negative prices. Alberta lost more economic growth, jobs, and revenue than any other province. The Keystone XL pipeline was blocked by President Biden. A second wave of Covid hit the province in the fall, followed by more tough restrictions on individuals and businesses. Political controversies have dogged the government. There were significant policy fails, such as on coal. Divides in caucus split open over Covid restrictions. But it wasn’t all bad. The government has had successes too.
They have been lauded for new initiatives and policies on carbon capture utilization and storage, hydrogen, small modular reactors, petrochemicals, natural gas, plastics recycling, LNG and technology. Some new private sector investment has gone into oil and gas, hi-tech and pharma. The Line 3 pipeline was finally cleared for operation. Progress on the TMX pipeline continues. The federal government’s Canada Infrastructure Bank will fund an expansion of irrigated land in southern Alberta. Oil and gas prices have recovered, and rigs are going back to work. Covid cases have fallen steadily. But there are many challenges ahead, starting with ensuring Albertans get vaccinated and the economy reopens.
Who’s Who in the Zoo?
The team of political staff that came into government with Premier Kenney was impressive. They were highly educated, well connected, had known each other for years and, for the most part, were political veterans. Two years later, and several key players including the Premier’s Chief of Staff (Jamie Huckabay) Principal Secretary (Howard Anglin), Director of Communications (Katy Merrifield) and Senior Advisor (David Knight-Legg) have moved on. It’s a new cast in the Premier’s Office but they have one thing in common: all have risen through the UCP ranks during the most difficult political times.
Larry Kaumeyer is now Principal Secretary and acting Chief of Staff. Pam Livingston is the Premier’s new Deputy Chief of Staff, coming from Environment Minister Jason Nixon’s office. Communications is headed up by Executive Director Brock Harrison, with former Energy Press Secretary Kavi Bal running Strategic Communications and Christine Myatt directing Government Communications. Matt Wolf runs Issues Management. All proved themselves in other positions before being tapped by the premier to be his senior team. They will most likely be his team heading into the next election.
Meanwhile, Premier Kenney has resisted wholesale change in his cabinet with only a handful of shuffles to date. The departure of Tracy Allard may necessitate another change as Ric McIver now serves as both Minister of Transportation and Minister of Municipal Affairs. It seems likely that he will continue in both roles until after the spring session of the legislature.
By The Numbers
1. The Deficit is High, But Not as High as Expected
The deficit for 2020/21 will be $20.2 billion, less than the $21.7 billion deficit forecast in November. That’s the good news but it still puts us a long way from the GoA goal of running in the black. And yet the budget documents show the deficit dropping to $18 billion in 2021/22. $11 billion in 2022/23 and $8 billion in 2023/24.
According to the budget documents:
Taxpayer supported debt outstanding is estimated to total $98 billion at the end of 2020-21 and $115.8 billion at the end of 2021-22. Consolidated debt servicing costs are estimated to be $2.8 billion in 2021-22. Debt servicing costs on taxpayer supported debt are projected to be $2.3 billion in 2021-22.
The Finance Minister declined to name a date for balancing the budget citing the uncertainty caused by the pandemic.
2. A Picture is Worth a Thousand Words
3. Economy to Take Off Once We Get Vaccinated
The government will struggle for support until there are more jobs and rising incomes, a litmus test for any government.
Step one is the wide-spread vaccination of the working population and the protection of the most vulnerable from the COVID19 virus. Step two is big and uncertain: getting Albertans back to work and building an economy suitable for the post covid age.
After learning their lesson last year about overly optimistic economic forecasts, Budget 2021 is cautious. It predicts economic growth of 4.8% this year, mostly in the last half after falling 7.8% last year. WTI oil prices are currently around $60 US. The minister is lowballing his oil, heavy oil and gas forecasts (US $46/bbl, CDN $40.70/bbl and $2.60 GJ, respectively).
Governments hate it when they don’t have control. They must really hate the uncertainty around 2021. If they get remotely lucky their cautious approach is bound to pay some political dividends.
4. Spending and Adopting Fiscal Anchors
The Finance Minister will base spending decisions around three fiscal anchors: net debt to GDP will remain under 30%, per capita spending will be in line with comparator provinces like Quebec, Ontario and BC, and moving to a balanced budget post pandemic.
Of these three the anchor most in their control is their own spending. Alberta remains committed to bringing down spending on government services. The MacKinnon Report, the Premier’s deficit reduction north star, argues that alone could reduce spending by $10.4 billion a year.
The major reduction in spending this budget came in the form of public sector jobs and compensation. The government continues to implement their planned 7.7% overall reduction in the public service. This year, 311 full-time jobs will be cut and public sector compensation will drop by $1 billion.
Funding for education and school boards remains flat at $8.2 billion, despite an expected increase in the number of enrolled students. Municipally, the government is significantly increasing the funding for the Municipal Sustainability Initiative to $1.2 billion, however next year they project to cut this funding to $485 million.
5. The Personal Impacts
Despite advice from the Business Council of Alberta to bring in a provincial sales tax, there was no PST in Budget 2021. Will there be a PST on the October 2021 referendum? Time will tell. Just don’t expect fiscal conservatives to accept it without a fight. But some fees will increase in 2021.
Environment and Parks will collect an extra $1 to $3 dollar in park and campground fees. A new $30 permit fee for off-highway vehicles (OHV) and camping trailers will come also into effect this year, the government indicated that this was a campaign promise.
Programs, Policy and Politics
6. There is No Great Reset in Alberta But There is a Decided Shift
Over the last year the GoA has been shifting economic development policies away from laissez faire economics and an emphasis on oil and gas to a more active government role in directing funds and using incentives to diversify and attract business to specific sectors. Aviation, Aerospace, Pharmaceutical, Hydrogen, Tech, Tourism, Film, Geothermal, Renewable Energy, all get shoutouts and funding to back them up.
There is also acknowledgement of the importance of Environment, Social, and Governance (ESG) considerations in attracting investment to the province. David Knight Legg remains a key advisor of the Premier while serving both as Chair of the ESG Working Group for the Province of Alberta and CEO of the Invest Alberta provincial agency.
7. Setting the Tone
Premier Kenney prefaced Budget 2021 as “protecting lives and livelihoods”. The fiscal reckoning that was long promised seems to be avoided (at least until the pandemic ends), and if Budget 2021 was to be summed up in one word it would be “recovery”. In fact, recovery was mentioned 309 times in Budget 2021. Other common themes included diversification, supported through enabling industries such as aviation, tourism, technology, etc.; putting to rest old fights (i.e., doctors and teachers); and alignment with the other Canadian jurisdictions, most evident in the cuts to the public sector. The visual below flushes out the key words and themes found in Budget 2021:
8. Relations with Ottawa
If there were ever any illusions about peace breaking out between Ottawa and Alberta, the budget speech and documents have laid that notion to rest. To quote the Budget Speech:
Mr. Speaker, the biggest obstacle to recovery may be our own national government, which has layered on regulatory requirements, created investment uncertainty, chased away the investment that maintains family-supporting jobs, and is now increasing the costs for our most vital national economic drivers.
The Prime Minister’s meeting with President Biden indicated the two would work on a continental approach to climate change. You can bet that Alberta will demand to be at the table for those discussions.
9. Rocky Relationship with Municipalities Continues with Budget 2021
Alberta’s municipalities are none too happy with Budget 2021. One municipal official commented to New West Public Affairs that they thought the budget was “a disaster” for municipalities and another said the government was supporting municipal infrastructure at “Prince Edward Island spending levels.”
Drama aside, infrastructure spending through the Municipal Sustainability Initiative (MSI) is the big beef for Alberta’s municipalities. The government is boosting spending in this program to $1.2 billion for this year in the budget, but following that municipalities see significant cuts to their core infrastructure grant.
Another low-key reform are changes to the Disaster Recovery Program (DRP) that could have significant consequences for municipalities. DRP is the program that municipalities apply for after they’re hit with a natural disaster. All the billions spent recovering from the 2016 Fort Mac wildfires? Calgary and High River floods in 2013? – that’s DRP money. The province will introduce cost-sharing formulas into DRP for the 2021 disaster season. That means if a community suffers a natural disaster this summer or moving forward, the local municipality is going to be carrying much more of the financial weight to recover than before.
10. Reducing Public Sector Compensation is Tricky, But the UCP Government is Committed to Doing it
Addressing public sector compensation is much more complicated than most people realize. Every year around budget time, armchair analysts say “wage rollbacks!”, but the reality is mechanisms for legally reducing public sector compensation have evolved since the 1990s and Ralph Klein’s famous across-the-board wage rollbacks. Since that time many governments have lost in court with a Canadian jurisprudence now fairly established that says wage rollbacks are a violation of collective bargaining rights and therefore unconstitutional. The Government of Alberta knows this and that’s why you aren’t seeing rollbacks.
The UCP Government is committed to “right-sizing” – to use the budget language – public sector compensation, and they’ve baked into their budget an approximant 4% reduction in public sector compensation just this year. For context, that’s almost $1 billion in reduced public sector wages. But how will they do it without rollbacks? Well, they’ll try their best to negotiate rollbacks with the public sector unions. It’s more likely this goal will be met by more layoffs of both unionized and non-unionized public servants as public sector unions are loathe to accept rollbacks.
11. Rural Versus Urban
Budget 2021 and the first two pieces of legislation in the spring session of the legislature are the Alberta Government’s response to rural frustration. Rural Albertas are resisting everything from Covid restrictions, Alberta’s proposed coal policy, and the Keystone XL cancellation, to federal firearms restrictions, equalization, and the mere mention of Justin Trudeau. In short, it’s the perceived lack of respect. The GoA addresses that with recall and referenda legislation that empowers Albertans to make changes between elections, a concession to rural Alberta’s populist tendencies.
The budget has $10 million dollars allocated for an equalization referendum and senate elections in October of this year. Expect these initiatives to be controversial.
Fair Deal Panel recommendations such as a provincial police force and an Alberta pension plan may also make it on the referendum. A vote on a provincial sales tax will also be under consideration.
12. Biden, Bitumen and Bad Times
The Government of Alberta addressed their Keystone XL investment upfront, highlighting it in an inset box in the budget documents. The government claims that their current total exposure is $1.276 billion dollars. They also hold out hope that some of that can be recouped:
Currently, the Government of Alberta is working with TC Energy to explore all options to advance the project and is strongly encouraging the Government of Canada to do the same. If KXL does not proceed, the Alberta government will explore all options to recoup the investment. Budget 2021 does not include any provisions for expense which may be incurred in that pursuit.
13. Infrastructure Stimulus a Big Push for Now
The capital plan remains a core piece of Alberta’s economic recovery effort. By taking advantage of high unemployment and low interest rates, the province plans to chart its path back to prosperity partially through investments in infrastructure. The Alberta government will spend $20.7 billion over three years on infrastructure which is $1.7 billion more than forecast last budget.
The Government is forecasting pulling back on infrastructure stimulus in 2022.
14. Reforming the Post-Secondary Education System
The overall focus in Advanced Education this year is the implementation of a performance-based funding model and the completion of the Alberta 2030: Building Skills for Jobs sector strategy. Post-secondary again saw significant budget reductions, with the government reducing operational funding for institutions by $135 million. The Minister of Advanced Education will be meeting with institutions in the coming weeks to discuss the implementation of performance funding models, which each institution developing an individual 3-year funding agreement with the government. Performance measures are expected to include administrative cost ratios and recent graduate employment and income. There were no changes to tuition policy in the budget, meaning tuition will increase 7% overall next year. Mount Royal University is receiving $50 million in funding for construction projects to repurpose spaces on campus and accommodate for increased enrolment.
15. Energy Diversification Strategies are a BIG Part of Recovery Plans
The “D-word” – diversification – has been an off-and-on obsession of Alberta governments for over 40 years. But diversification in the 2020s isn’t just renewable energy development and technology strategies. It’s about energy diversification drawing on Alberta’s strengths in oil and gas to build spinoff industries. Broad-based energy diversification strategies continue in Budget 2021 which continues support for the Alberta Petrochemicals Incentive Program, the Natural Gas Vision and Strategy, Carbon Capture and Utilization technology and $28 million for Geothermal Resource Development and the Mineral Strategy.
Alberta will be looking to focus on emerging opportunities for energy diversification in 2021 in areas like liquefied natural gas, petrochemical manufacturing, hydrogen and the plastics circular economy to help support the government’s recovery agenda.
16. Not Taking a Backseat Anymore – Technology
The technology sector has been a rare Alberta bright spot. Calgary Economic Development reports that tech sector hiring will double the pace of the rest of Alberta’s economy before the next election in 2023 – but this success remains fragile. The yet to be released Alberta Technology and Innovation Strategy led by Minister Doug Schweitzer will be one of the most scrutinized and important announcements made in the Alberta Government’s first mandate.
Budget 2021 hints at what to expect. As part of “key sector growth,” the Government of Alberta is investing parts of $3.1 billion into the Tech and Innovation Strategy for the creation of the Innovation Employment Grant, a new Digital Strategy to save costs and improve service delivery (including government IT infrastructure), and a provincial broadband strategy to close the service divide between urban and rural communities. Alberta Innovates is also receiving an additional $15 million to support tech entrepreneurs. Details beyond that? We just don’t know yet. The Minister promises to bring the full strategy to light in the coming weeks.
17. The GoA Petrie Dish Grows a Pharma and Life Sciences Strategy
Budget 2021 dips a toe into developing a vaccine development and production industry in Alberta. The Pharmaceuticals and Life Science strategy provides $20 million over four years for the Li Ka Shing Applied Virology Institute at the University of Alberta to build a stronger network between academic, industry and government to attract investment and the necessary talent to make these programs successful.
While not yet fleshed out the goals of the strategy are:
optimizing system support and collaborations between academia, industry and government to boost sector growth, attract investment and create knowledge-intensive jobs
18. Leading Alberta’s Economic Recovery
Agriculture and Forestry had their single biggest year ever in 2020. They will be expected to do much more in the years ahead. In addition to a major contribution from the Canada Infrastructure Bank to expand irrigation in southern Alberta, the government wants to expand value added agriculture production and processing and to ensure stability for forestry:
As part of the Recovery Plan, Alberta’s government has set a target to attract $1.4 billion in investment, which will create more than 2,000 jobs in emerging sectors like hemp, agritechnology and value-added processing. The Forest Jobs Action Plan ensures the forest industry’s annual allowable cut supports key economic investment, maintains hundreds of short-term jobs and sustains up to 1,600 jobs over the long-term.
19. Welcome to Alberta – Mountains, Cowboys, Badlands, Movies
Budget 2021 provides as additional $66 million for the tourism sector over three years. That’s a (relatively) big investment in a sector that has been hit harder than any other. This is in addition to an extra $2 million annually for Travel Alberta. The Government of Alberta had previously committed to doubling the size of Alberta’s tourism industry by 2030. The Film and Television Tax Credit also received special mention in the budget.
20. Alberta Jobs Now Program
Budget 2021 also includes $136 million for the Alberta Jobs Now program. This program will provide a grant to eligible employers to train and hire new employees to provide Albertans opportunities to enhance their skills and to encourage employers to create jobs in order to get unemployed Albertans back to work.
21. Emerging Sectors, and New Initiatives, Funds and Incentives
We are hard pressed to improve on Budget 2021’s to the point descriptions of other initiatives:
Other Recovery Initiatives and Strategies:
- The Labour and Talent Strategy will increase work-integrated learning opportunities, expand apprenticeships, and enhance connections between post-secondary institutions and industry. This includes an additional $5 million to create internship opportunities for Alberta students through Mitacs International and $2 million to help young Albertans explore futures in the trades and other in-demand sectors for CAREERS: The Next Generation.
- The Manufacturing Strategy is under development and aims to increase competitiveness in areas of traditional manufacturing strength and enable growth of Alberta’s advanced manufacturing capabilities.
- The Stabilize Program will provide one-time funding to reignite Alberta’s live experience sports, arts, and culture organizations and empower these organizations to reimagine their events and operating models to build an even stronger live experience sector.
- The Investment and Growth Strategy aims to increase Alberta’s competitive advantage, improve Alberta’s investment and attraction ecosystem, and raise Alberta’s reputation as an investment destination. Invest Alberta will promote Alberta’s attractive business environment and identify and pursue new high-value or high-impact investment. The $10 million Enterprise Fund will enable this work.
- Support for the Film and Television Tax Credit will accelerate the growth of Alberta’s film and television sector to make Alberta more competitive.
- $449 million in stimulus funding was provided over four years through the Technology Innovation and Emissions Reduction (TIER) system to reduce emissions and position Alberta as a global sustainable energy leader.