Premier Smith says restraint needed in Alberta budget 2024, vows to build Heritage Fund
Alberta Premier Danielle Smith promised not to cut spending this year in a pre-budget speech on Wednesday but said the province still needs to show more restraint than previously expected.
In a pre-budget, eight-minute paid prime time televised speech, Smith said lower resource revenues and the volatile price of oil and gas have prompted the government to think of a long-term strategic financial plan to have a “stable, balanced budget.”
In short, Smith said the province must, in the long-term, get off the rollercoaster ride that is relying on oil and gas prices.
Those challenges are caused by the province’s “unsustainable” dependence on a non-renewable resource, according to Smith, and Alberta can no longer rely on billions of dollars in resource revenues to balance the budget.
The speech comes before the United Conservative government unveiled its budget for 2024, which is scheduled for Feb. 28. The province previously forecast a surplus of $5.5 billion in 2023-24 during its mid-year fiscal update.
“Thankfully, we had a good year and we’ll collect enough resource revenues to cover that $16 billion, with a few billion leftover to pay towards our provincial debt and savings for the future,” Smith said during Wednesday’s address.
“That said, we simply cannot continue to rely on $16 billion or more in resource revenues to balance our budget year in and out.”
“That is a recipe for massive debt and cuts to health and education when the price of oil takes a dip for a year or two or more.”
Smith also said the United Conservative government will not increase sales taxes but will instead renew investments into Alberta’s Heritage Savings Trust Fund, which was established in 1976 to collect a portion of the province’s non-renewable revenues for “future generations.”
According to the Alberta government, the initial investment of $2.2 billion has grown to $21.2 billion as of March 31, 2023.
Smith said previous governments did not re-invest in the fund for various reasons, losing between $12 billion to $25 billion per year in revenue.
Smith said the United Conservative government plans to reinvest $3 billion of surplus and investment income back into the Heritage Fund, increasing its value to $25 billion and putting the province “back on track.”
The goal is to have between $250 billion to $400 billion in the fund by 2050, she said, and the government will publicly release a long-term financial plan by the end of the year along with plans on how to achieve a carbon-neutral economy by that same year.
“There is no doubt in my mind we are capable of achieving these goals, but we need to start today and stick with it fervently year after year.
“I ask for your support as our government commits itself to placing our province on this path to prosperity that will last long after our last barrel of oil has been produced.”
Smith added she instructed Finance Minister Nate Horner to limit government spending to below the legislated rate cap of inflation plus population growth, no matter if oil and gas prices are high or low.
“Instead of spending all that non-renewable surplus cash on the wants of today, we will be fiscally disciplined — invest in the Heritage Fund annually, strategically pay down maturing debt. And slowly but surely, wean our province’s budget off the volatile roller coaster of resource revenues,” she said.
“In my view, our province has one last shot at getting this right. We still have several decades during this global energy transition, where nations will desperately need our oil and gas resources for their people, and we will provide it to them.”
But Smith said she thinks the province will see an “unprecedented and prolonged energy resource boom” despite a predicted global economic slowdown.
“I believe our province is on the cusp of an unprecedented and prolonged energy resource boom, one that will include both hundreds of billions in investment and tens of thousands of new jobs, not only in oil and gas production, but also in designing and building the most advanced emission reduction technologies on Earth,” she said.
“It is going to be an exciting time for our province and for Canada, especially once we finally get a federal government that acts like a strategic partner rather than a delusional adversary.”
Alberta NDP reacts
Christina Gray, deputy leader of the Alberta NDP caucus, said the premier’s speech didn’t address the promises Smith made in the 2023 provincial election.
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Gray said Albertans are “missing out” on at least $272 million in affordability measures Smith promised in the 2023 campaign, such as lowering utility prices and addressing high rents.
Gray also said Smith’s government created chaos in the provincial health-care and education systems, and accused the premier of breaking promises to make life in Alberta more affordable.
“Danielle Smith had the opportunity to fix the chaos her government has created for health care, but she didn’t. She had the opportunity to make life more affordable for you and your loved ones, but she didn’t,” Gray said at a news conference on Wednesday evening.
Gray said the United Conservative government’s inaction will mean things will only get worse for Albertans.
“Alberta’s inflation is the highest in the country. When you combine that with Alberta’s population growth, the UCP plan won’t cut it,” she said.
“You deserve public health care that’s there for you when you need it. Not a new hire fee just to park at the hospital. Your kids deserve good schools in your community, not in overcrowded classrooms. You deserve an affordable place to live, not skyrocketing rents and out-of-reach home prices. And you deserve a government that focuses on a resilient and sustainable economy with good paying jobs to keep up with the cost of living.”
Smith’s speech a winning message to her base: analysts
Michael Solberg, a political strategist with New West Public Affairs, said Wednesday’s televised address is in line with expectations from her base and from many other Albertans.
Solberg said Smith presented an “innovative” and “alternative” solution to the province’s financial challenges but next week’s budget will reveal details on how the government is planning to achieve those goals.
“What Albertans expect of their government, of their premier, of their financial managers, of the government’s purse, is for them to (make) crucial investments into things like infrastructure, creating liquidity in the economy, creating jobs, and, of course, making core investments into education and health care, while at the same time threading the needle,” Solberg said.
“What is a very unique Alberta characteristic is that we don’t tolerate budget deficits and we don’t tolerate fiscal and imprudence. We want all of these services without raising taxes, and the premier is clear in her address that she does not intend to raise taxes.”
Solberg called Smith’s goal to have $250 billion to $400 billion in the Heritage Savings Trust Fund “aspirational,” saying it’s an attempt to continue former premier Peter Lougheed’s ambition to get the province off the “commodity rollercoaster.”
“I think, if nothing else, it shows that the Premier’s creative in trying to figure out a way to diversify or stabilize the government’s fiscal situation where we’re not so reliant on commodity prices, namely oil and gas. And I think it will be a stake in the ground and frankly, part of her legacy. If she pulls it off, kudos to her,” he said.
Duane Bratt, a political scientist at Mount Royal University, said Smith’s speech is not so much a preview of Budget 2024 but rather a long-term financial plan.
“Her proposal fits with what economists have been talking about for decades – start pulling the interest out of the Heritage Fund and putting in general revenue and just let it sit there. That’s not so much reinvesting into the Heritage Fund, it’s just leaving it be,” Bratt told Global News.
“The challenge, of course, is how do you bind future governments for the next 20 or 30 years to be able to do that?”
Bratt added Smith is also slowly delivering on a campaign promise to cut income taxes, even though it has been delayed.
However, he said the United Conservative government needs to show how they plan on cutting income taxes eventually.
“This was a major campaign promise during the election campaign. She announced it on day one. She played with that all election … She talked about phasing it in. What does that mean?” the political scientist said.
Bratt said Smith’s speech is an indication that Budget 2024 will be “boring” for many except for those who wanted a tax cut.
He said he also expects smaller infusions of cash for things like health care and education because of the proposed limits to provincial spending.
However, Bratt said it is rare for an Alberta government to talk about energy transition so explicitly.
“It is rare that we hear a government, particularly this government, explicitly saying energy transition, but she’s not saying that that’s about to happen this year or next year,” he said.
“She didn’t mention Trudeau by name. She didn’t mention (Steven) Guilbeault by name but referred to a delusional adversary. If this was about a budget, why did she need to throw that last piece in there? She can’t help herself.”
Elizabeth Smythe, a political scientist at Concordia University in Edmonton, said she was surprised Smith was “frank” about the province’s economy.
She said Smith is portraying the United Conservative government’s goals as achievable, even though they are pitching alternative solutions. The government will also try to pitch the restructuring of public services like health care as a way to run things more efficiently.
“I think there’ll be a certain amount of selective funding for certain more high profile parts of programs and services, but very often they’ll be somewhere else. They’ll be trimming around the edges to try and find that revenue,” Smythe said.
“I think they’re going to try and portray this, funding as (one that is) still maintaining the core services, but I think you need to really read the footnotes and look very carefully at what the final numbers are.”
However, Smythe said Smith’s Heritage Fund announcement is based on a lot of assumptions on oil prices.
“Clearly, she felt the need to pre-empt perhaps the more negative reaction that will come to the budget … There are some rough waters ahead, but it’s all going to be okay because we’re going to create and we’re going to rejuvenate the fund,” Smythe said.
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