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Alberta will trim spending and embark on an ambitious plan to grow the Heritage Savings Trust Fund by billions in an attempt to forever wean the province off resource revenue by 2050, Premier Danielle Smith told Albertans Wednesday in a televised prelude to next week’s budget.
“I have instructed [Finance Minister Nate Horner] to limit government spending to below the legislated rate cap of inflation plus population growth, not just during lean years with lower oil prices as we expect next year, but also in years when high oil and natural gas prices result in billions of surplus provincial dollars,” Smith said in an address to the province.
Smith said she aims to “wean our province’s budget off the volatile roller-coaster of resource revenues,” calling it “one last shot at getting this right.”
Her government will release a financial plan before the end of this year showing how it plans to grow the Heritage Fund to between $250 billion and $400 billion by the year 2050, Smith said.
Accomplishing that goal could be challenging, says Brendan Boyd, an assistant political science professor at MacEwan University.
“If we look at recent history, I don’t think other governments have been able to stick to it the way they may have initially said they would,” he said.
“And so I think it’s going to be a challenge because there’s the economic rationale, but there’s also the political rationale and the political realities that governments face.”
During the current budget year, the government hopes to put another $3 billion in surplus and investment interest back into the Heritage Fund, bringing its value up to nearly $25 billion, she said.
Looking ahead to budget for 2024-25
Like her predecessors in the premier’s office, Smith used Wednesday’s pre-taped speech to prepare Albertans for what to expect when Horner introduces the 2024-25 budget on Feb. 29.
Spending cuts will not be needed to balance the budget, but lower resource revenues will require the government to “show more restraint than previously predicted,” she said.
Spending will be done “thoughtfully,” with priority given to health, education and social services, she said. Smith said she rejects the notion that higher income taxes or a sales tax are the answer to the province’s financial challenges.
Her government’s new approach to finances will apply to future budgets regardless of whether there is a boom or bust in resource revenues, Smith said.
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Instead, Alberta will bank the windfall during what Smith sees as another several decades of an “unprecedented and prolonged energy resource boom.”
Smith said the Heritage Fund would be worth more than $250 billion today if subsequent governments had left untouched the original $12-billion investments made in the ’70s and early ’80s.
The fund, established in 1976 by then-premier Peter Lougheed, was worth $21.2 billion on March 31, 2023.
Smith noted that 2050, when she wants the Heritage Fund to be worth up to $400 billion, is also Alberta’s target year for achieving a carbon-neutral economy.
“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,” she said.
Chetan Dave, an economics professor at the University of Alberta, said that while past governments have spoken about similar tactics, they never panned out, he said.
But the idea could work, he said.
“If they can pull it off, it’s going to be a pretty big deal,” Dave told CBC News Wednesday night.
“It sounds like this government wants to … actually make it a reality, but the devil is going to be in the details.”
Dave said he is also concerned, however, that Smith’s proposal to limit spending could mean extra funds needed for investments to education and health care won’t exist.
He said will be watching for the full financial details of the 2024-25 budget, expected to be tabled next week.
Tax break deferred
Smith promised on the first day of the 2023 election campaign that a UCP government would create a new eight-per-cent tax bracket on income under $60,000, a move the government said would save Albertans up to $750 annually.
She said Wednesday the start of that plan “will have to wait a year and be phased in responsibly.”
Alberta is the only Canadian province without a PST. Corporations pay an eight per cent tax rate, the lowest in the country.
As the province gets closer to unveiling the budget next week, Boyd said he’ll be looking to see if there’s pushback from within the UCP.
Dave said Smith is stuck between a rock and a hard place trying to figure out how to achieve a stable, balanced budget while still making Alberta look appealing to investors and Canadians.
“This Heritage Fund idea is potentially a really big deal,” he said. “It has the potential to be transformative like no other previous budget.”
Source: cbc
