Advocacy

February 2, 2024

Pre-Budget Submission for the Provincial Government 2024 Budget

January 26, 2024

The Honourable Nate Horner, M.L.A.
President of Treasury Board and Minister of Finance
208 Legislature Building
10800 – 97 Avenue
Edmonton, AB T5K 2B6

Dear Minister Horner,

The Business Council of Alberta (BCA) is pleased to provide ideas and recommendations to the Government of Alberta in advance of its 2024 budget.

We are a non-partisan organization composed of the province’s largest enterprise chief executives and leading entrepreneurs. Our members represent the majority of Alberta’s private sector investment, job creation, exports, and research and development. We are dedicated to building a better and more prosperous Alberta within a strong Canada.

As we approach Budget 2024, Alberta is in a strong economic and fiscal position compared to the rest of Canada. However, that strength is relative. Economic growth in Canada is expected to be weak in 2024, mirroring slowdowns elsewhere in the global economy. Here at home, job creation is moderating, higher interest rates are slowing business investment, and Albertans are spending less as concerns about inflation and affordability mount.

BCA recognizes that being a provincial Finance Minister in Alberta is no easy task, even at the best of times. Competing demands across government combined with volatile and unpredictable resource revenues make budgeting and long-term planning difficult. And at times like now, when the economy is slowing and the outlook for energy prices is dimmer, the challenges are magnified even further.

There are other issues to consider as well. Affordability remains a concern in Alberta, as does the impact of rapid population growth on public service delivery, infrastructure demand, and the available housing stock. While investing in infrastructure and housing will pay dividends down the road, the province must bear the costs of those investments today. If that weren’t enough, the increased frequency of natural disasters like forest fires and drought increases the need for contingency funding, make budgeting even more difficult still.

All that said, we believe Budget 2024 needs to strike a balance between addressing some urgent short-term challenges (including those listed above), while also casting an eye to the future—making strategic investments today that will improve productivity and competitiveness, foster innovation, attract new business activity, and create opportunity and prosperity for all Albertans. With that context in mind, BCA offers the following considerations as the Government of Alberta prepares to release its 2024 budget.

Three priority issues:

Incentivizing investment in decarbonization

Alberta sits on the precipice of a potential decarbonization investment windfall—one that would help create thousands of new jobs, promote globally-competitive natural resource exports, and attract new industries looking to locate in climate-friendly jurisdictions. Dow Chemical’s project in Fort Saskatchewan could be just the beginning. The Pathways to Net Zero Alliance represents further investment and economic opportunity for Alberta.

Last year, Alberta released its Emissions Reduction and Energy Development Plan, sending a clear signal to investors that Alberta is serious about developing and scaling the technologies needed to reduce the emissions across the entire economy. A buildout of the scale required to capture carbon; produce hydrogen; and grow a clean, reliable, and affordable electrical grid (to name a few sectors) will set the stage for our resource and manufactured goods exports to compete globally for years to come.

This future won’t be unlocked on its own. Budget 2024 should be focused on de-risking the billions in investments needed to kickstart this opportunity. Several enabling policies are needed:

First, the Business Council hopes to see the details of the province’s proposed Alberta Carbon Capture Incentive Program (ACCIP) made transparent with assurances that it will be fully ready for rollout as soon as the federal carbon capture investment tax credit is legislated. This is vital for fully realizing Alberta’s carbon capture (CCUS) opportunity.

Second, Budget 2024 should secure the Technology Innovation and Emissions Reduction (TIER) system as Alberta’s primary, long-term tool for tackling industrial emissions. BCA and its members believe that, with the right adjustments to the policy over time, TIER’s carbon pricing and carbon market mechanisms will provide the most efficient, lowest cost pathway to industrial emissions reductions while protecting business competitiveness. However, TIER faces some headwinds that Budget 2024 could help correct.

Federal policies like the newly proposed Oil and Gas Emissions Cap could undermine TIER’s role as the primary driver of emissions reductions on the margin; and threaten decarbonization investment certainty for non-oil and gas participants in the TIER carbon market. As such, the province should be working to ensure emissions reductions are driven by TIER, and not in response to other regulatory measures that layer costs and create uncertainties for businesses.

Furthermore, TIER’s carbon credit market faces uncertainties that could undermine large decarbonization investments. If the supply of credits available in the market rises too quickly relative to TIER’s increasing stringency, CCUS-scale decarbonization investments may be discouraged. This can be solved by allocating more of the TIER fund away from debt and deficit reduction and toward carbon contracts for difference—a tool that can guarantee a credit price that incentivizes decarbonization investment and all jobs that come with it.

And third, Budget 2024 should signal the province’s commitment to achieving a reliable, affordable and net-zero grid by 2050. To do so, Budget 2024 should seek to accomplish three main goals: (1) set up provincial industrial carbon pricing signals as the primary means of driving low-carbon investment; (2) structure the electricity market to better incentivize technology-agnostic private sector investments that ensure system-level grid stability at the lowest possible cost to businesses and households; and (3) ensure project approval and permitting frameworks match the ambitious pace of investment needed in the generation, transmission, and distribution buildout required to achieve grid affordability, reliability, and cleanliness targets.

Investing in post-secondary education

Alberta is in an unusual demographic situation compared to many other provinces. According to 2022 data from Statistics Canada, about 12.6% of Albertans are within the ages of 5-14, compared to just 10.5% in other parts of Canada. That means that within just a few years, there will be a disproportionately large cohort of young Albertans entering the post-secondary education system, putting considerable capacity pressure on those institutions. By 2030, the Alberta Post Secondary Network estimates the province will see 30,000 new students enter the system. Meanwhile, in spite of growing demand, total enrolments have remained virtually unchanged over the last decade, and government funding per student (inflation-adjusted) is approaching a 50-year low.

The Alberta government needs to invest in new post-secondary enrolment capacity now, not just to make up for lost ground, but also to ensure that we have enough spaces available when the anticipated cohort surge hits.

This need is especially important given the province’s well-documented labour shortages in key occupations. Businesses in construction, including residential home-building and industrial construction, are struggling to find workers, particularly those in the skilled trades. There are urgent needs in areas like trucking and agriculture as well. And finally, Alberta’s health care system is in dire need of doctors and nurses to provide the health services Albertans need and expect.

As part of its fiscal rules, the provincial government has committed to limiting spending growth to population plus inflation. While we support this concept for the budget as a whole, we believe this increase should be exceeded in the case of post-secondary education. We need to ensure that Alberta’s universities, colleges and polytechnics have the spaces available for the incoming cohort bubble, especially in areas of anticipated high labour demand.

At the same time, investing in new spaces does not guarantee that students will fill them. As part of a long-term strategy to ease labour shortages in the province, the Alberta government should re-invigorate its efforts to promote careers in skilled trades, STEM professions, and other high-demand occupations to secondary students across the province. 

Sticking to Alberta’s fiscal rules

Budget 2024/25 marks the first budget since the province set forth its fiscal framework to limit spending growth, pay down debt and save for the future.

BCA strongly supports this framework and sees it as an important tool in building a more fiscally sustainable province. This framework will help to ensure all fiscal decisions are made with an eye to the future, hold the current and future governments accountable, and signal Alberta’s sound financial state and trajectory to prospective lenders and Albertans. 

Specific components of this new framework include: legislation that mandates a balanced budget (except in the event of extreme circumstances); a cap on year-to-year operating spending growth (equal to population growth plus inflation); and rules for the use of surplus revenues to support debt repayment and economic investment.

This year could put the framework to the test.

On the revenue side, global issues such as inflation, interest rates, and a potential economic downturn could weigh on the province’s tax base. At the same time, volatility in oil markets remains a huge risk to the province’s ability to balance the books given the importance of resource royalties to the provincial budget. Though one-year swings in oil prices and revenues are accounted for in the fiscal framework (thanks to an exemption to the balance budget mandate in the case of a large and unexpected decline in revenues), this nonetheless affects provincial finances. Persistently low prices risk eroding fiscal sustainability longer-term.

On the spending side, demographic trends put upward pressure on government spending. Alberta’s population is aging, and as mentioned above, a large cohort of young adults are reaching post-secondary school age. At the same time, a shortage of professionals in health care and education could limit government’s capacity to provide essential services to a growing and aging population.

Nonetheless, this framework is only useful if followed. Though it may be challenging, following the rules it sets out is important work that should encourage the provincial government to: 1) take a closer look at existing spending to identify inefficiencies and consider better processes and approaches (health care being a particular area of opportunity); and 2) identify opportunities to support a strong and stable tax base through economic growth, shifting reliance away from resource royalties. As such, we strongly encourage the use of this framework not as an end unto itself but as an important part of a thoughtful strategy for long-term fiscal sustainability.

Thank you for considering our priority areas as you prepare this year’s budget. We look forward to continuing to work with you and would welcome the opportunity to meet to discuss these priorities further.  

Sincerely,

Adam Legge

President

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