Briefing on Alberta’s Recovery Plan
Today, Alberta Premier Jason Kenney and Finance Minister Travis Toews released the Alberta Government’s economic recovery strategy, a multibillion-dollar plan to kickstart and diversify an Alberta economy laid low by Covid-19 and the global collapse in oil prices. Governments around the globe have been blown off course by the effects of the pandemic. Alberta’s course correction certainly ticked the boxes from the 2019 election slogan – Jobs, The Economy and Pipelines, while adding diversification to the list of promised outcomes.
Last week, the premier indicated that his plan would be ‘bold’. Based on the dollars committed and the sheer number of new initiatives announced, it lives up to that billing. However the devil is in the details and many details have yet to be released. We can expect major initiatives like the Natural Gas Strategy to come in the days ahead. Others will be released this summer. Technology strategies are always alluring. Alberta’s will be released this fall.
The biggest announcement today was probably the $10 billion dollars to be spent on infrastructure in 2020 and 2021, an increase of $3 billion over what was already planned. The GoA has high expectations that it will create tens of thousands of jobs. The already scheduled cut in the corporate tax rate will come 18 months ahead of schedule, coming into effect just two days from now, dropping the rate to 8%, and fulfilling a major UCP platform commitment. The other big announcement was the Innovation Jobs Grant, with details to come. Finally, the government announced an additional $175 million for the Alberta Enterprise Corporation which will pair investors with startups looking for capital.
In some ways this is a significant ideological shift for Premier Kenney. He noted that the immediate priority is jobs far more than concerns about balancing the budget. He emphasized that we can only get our finances in order if there is economic growth and job creation. He said he would not be bound by ideology and the new economic recovery strategy was ‘practical’. It is doubtful that he had ever envisioned that his government would ever go down the road of providing incentives for specific industries or throwing his deficit reduction plan out the window, but no one anticipated Covid-19 either. The most successful politicians also know that every crisis is an opportunity to demonstrate leadership. No one can criticize the Premier for being indecisive. Today’s announcement was bold, and it will be a significant part of Premier Kenney’s legacy, for better or worse.
Stakeholders who issued media releases following the event were strongly supportive. The opposition predictably opposed the measures. The real test will be in the economic growth and employment reports six and eight months from now. By then we will know if today’s announcement will have started the process of dragging the Alberta economy out of a very deep ditch. In the meantime, expect many more announcements on our way to a fully fleshed-out economic recovery strategy.
Today’s announcement is also an opportunity for Government of Alberta stakeholders. The Premier and his ministers are always open to hearing from organizations who are impacted by government actions. There is still time to shape government policies and sector strategies, and New West can help connect you with the right decision makers.
Alberta’s economic recovery plan included an additional $3 billion for capital projects above the $6.9 billion that was promised in Budget 2020 to push the province’s capital spending this year to an all-time high of $10 billion.
The Budget 2020 capital plan included municipal capital funding, money for roads and bridges, renewal of education infrastructure, and funding for family, social supports, and housing.
While some new spending has already been announced the additional $3 billion in capital plan dollars includes:
- $600 million to launch a series of large-scale infrastructure projects this summer. Expect these projects to be sprinkled across the province and be politically significant.
- $500 million in further funding for municipalities. Details on the nature of this funding will be available in the coming days but municipalities will be asked to prioritize shovel-ready projects that improve economic productivity.
- $476 million in stimulus funding through the Technology Innovation and Emissions Reduction (TIER) fund for investments in technology to reduce emissions.
- $200 million in Strategic Transportation Infrastructure Program (STIP) and Wastewater grants previously announced on June 19th.
- $1.5 billion investment in the Keystone XL pipeline announced in February.
One of Premier Kenney’s key platform commitments made during last year’s provincial election was to reduce Alberta’s corporate tax rate by a third from 12% to 8% over the course of his government’s mandate. The tax reform was originally planned to be achieved gradually with the province shaving a point off the corporate tax rate to reach 8% by January 1st, 2022. Today’s economic recovery plan announced that this timeline would be accelerated to July 1st, 2020. This means that on Wednesday, Alberta’s combined federal and provincial business tax rate will be lower than that of all other provinces and 44 U.S. states.
The accelerated corporate tax cut is part of a broader Government of Alberta initiative to tout its low-tax status as a means to attract new capital and new companies to set up shop in Alberta. This is evidenced by the province announcing the creation of a new provincial agency as part of today’s recovery plans called Invest Alberta. Premier Kenney informed today that this new provincial agency will “lead an aggressive worldwide campaign” to attract investment into Alberta. The agency will have offices in London, New York, Hong Kong, Singapore, Toronto and Houston and will focus on investment promotion targeting key companies and sectors.
The government also indicated Invest Alberta will be tasked with improving the province’s scores on environmental, social and governance (ESG) standards. ESG is a socially conscious investment criteria that companies around the world are now using to screen potential investments and help them decide where to park their capital. While the government’s commentary on the ESG movement included the requisite ‘fight-back’ language and pledges to stand-up against “misleading attacks” on the province’s energy sector, it is also committed to using Invest Alberta to position the province as a “part of the solution to move toward a lower-carbon economy.” This is another example of the “double-down plus” nature of the strategy the government announced today. Premier Kenney and the UCP will continue to defend what it sees as unfair perceptions of its energy industry while also working to develop, export and accelerate new low-carbon technologies that will help lower emissions and put Alberta’s energy sector on a path toward net-zero.
The low tax to attract investment strategy will be controversial. Critics will point out that while low corporate taxes do matter in investment decisions, they are not the only factor and not necessarily the most important either. This is why the government will also promote its highly educated talent pool, low cost of living, and affordable commercial property to further sway companies. The biggest challenge to the low tax strategy will be political. The opposition NDP have long questioned and attacked the government’s decision to reduce corporate taxes – a move they charge necessitates more cutbacks to public services and fails to produce jobs. The decision to expedite reductions to the corporate tax rate will no doubt be a point of attack for the opposition in the legislature as session wages on to its scheduled July 23 conclusion.
More details will be announced over the summer months, but this plan will no doubt be measured in its ability to bring jobs back to a province that desperately needs them.
For decades, many have been calling on Alberta governments to diversify the economy and decrease our reliance on oil and gas. This usually includes a call for innovation, an emphasis on the tech sector and a caution that we should find new markets for our goods and services.
Today the Premier made it clear that he believes there is more room to diversify within the oil and gas value chain (see below) while also responding to the growing call for measures to support innovation and the technology sector.
We cover ‘energy diversification’ and ‘broader economic diversification’ separately below:
The Premier announced today that his government will pursue a “diversified energy future.” This includes the development of:
A strategy to “position Alberta among the world’s top suppliers of low emission and affordable blue hydrogen.” There is a growing international consensus that clean hydrogen will play a key role in the world’s transition to a sustainable energy future. There is enormous potential for Alberta to harness our abundant supply of natural gas in this direction and the Kenney Government is keen on taking advantage of this.
- The long-rumoured Alberta-made strategy on natural gas was teased in today’s announcement. The government announced its intent to “finalize a new value-added natural gas strategy and petrochemical program.” We can expect additional details on the strategy in the days to come.
- The government also announced its intent to “develop a new mineral strategy and increase investment interest in new emerging areas such as geothermal energy.” At present, there are 690 agreements for metallic and industrial mineral exploration permits and no active underground mines in Alberta. Today’s announcement suggests an effort to open more quarries, issue additional permits and develop underground mines.
Broader Economic Diversification
Broader economic diversification (outside of the oil and gas industry) is a clear focal point of the government’s economic recovery strategy. It includes:
- Releasing a technology and innovation strategy in Fall 2020. The industry will be waiting and watching with bated breath for the details on this strategy. Stakeholders in the space will want to prepare meaningful government engagement strategies to ensure their issues and insights are heard by the government.
- Nearly half a billion dollars is being committed to invest in tech start-ups by flowing dollars through organizations like the Alberta Enterprise Corporation, Alberta Innovates, the Department of Economic Development and Trade and post-secondary institutions. Little detail has been provided on what these programs will look like and who will be eligible, but it indicates significant opportunity for tech companies to access sizeable capital. Interested organizations in the tech and innovation sector will similarly want to carefully consider a government engagement strategy to begin making their case.
- A major component of today’s announcement is the Innovation Employment Grant. This is a pivot away from the previous government’s investment tax credits, which the UCP scrapped in its first budget and which the Premier said were underused. The Innovation Employment Grant is this government’s response to calls for efforts to attract investment into Alberta’s tech and innovation sector from outside of the province. Few additional details were included but the Premier assured they would be announced in the “days to come.”