February 22, 2022

Five things to get right in the 2022 provincial budget

2022 Alberta Budget

This week’s budget will signal Alberta’s policy trajectory from pandemic response to economic growth and recovery and a balanced budget.

Here are five things we’ll be watching for movement on, which are priorities for the people and businesses of Alberta:

  1. Fiscal Pathway: A stronger, more resilient, and more competitive revenue model
  2. Jobs: A coordinated and strategic approach to workforce development training that focuses on long-term unemployment
  3. Climate: A plan to position Alberta as the centre of low-carbon innovation
  4. Innovation: A strategy to support Alberta’s fast-growing tech sector
  5. People: A commitment to prioritizing health care capacity

On February 24th, the provincial government will table Budget 2022. Along with a detailed breakdown of expense and revenue line items, budgets give us a sense of the government’s priorities as they lay out the economic and fiscal implications of policy decisions.

Back in 2019, the current government campaigned on balancing the budget by 2022-23. However, the COVID-19 pandemic quickly derailed that plan. The government was forced to roll out nearly $6 billion to cover pandemic-related expenses in 2020-21, including health responses, economic stimulus, and recovery plan initiatives. With partial economic shutdowns and an uncertain year ahead, in last year’s budget, the Alberta government projected a massive $18.2 billion deficit for 2021-22 and determined it would not be able to balance the budget until 2027.

However, Alberta’s fiscal situation improved dramatically as the year went on. Buoyed by much higher than expected oil prices, revenues soared and by the time the mid-year fiscal update was released in November, the projected deficit had shrunk to $5.8 billion. 

What does this all mean for Budget 2022? Economists generally agree that Alberta is on track to balance the budget this year, and some predict a surplus as high as $3 billion.

As our fiscal situation improves and we transition from pandemic response to economic growth and recovery, the time has come to focus on building prosperity and a positive future for Albertans.

With that in mind, here are five things we’ll be looking for on February 24th.

Fiscal Pathway: A stronger, more resilient, and more competitive revenue model

The province, supported by the Blue Ribbon Panel, has already done the hard work on the spending side of the ledger to bring provincial government expenditures in line with peer provinces. Now, the government should turn its attention to the revenue side. 

To be sure, Alberta is in a vastly different fiscal situation today than most people thought possible just 12 months ago. High oil prices have wiped away massive projected deficits and given the province some unexpected fiscal room—at least in the short term.

And this unexpectedness remains the central issue. Alberta remains overly reliant on volatile and unpredictable resource revenues. The fact that energy prices are high today doesn’t mean the volatility problem has gone away; it just means we’re on the positive side of the cycle.

Even though some oil sands projects have hit their payout and graduated to more lucrative royalty tiers, the future of energy royalties is unclear in the face of an ongoing pandemic, decarbonization, national and international policy changes, and changing consumer demand. For this reason, we believe now is the time to begin the process of building a revenue model that is stronger, more resilient, and more competitive.  

As such, we continue to urge the provincial government to announce a similar Blue Ribbon panel to look at its revenue mix. We want to see a modern and efficient tax system that is stable and predictable. A system that rewards investment and growth, is fair to Albertans, and extracts the most revenue possible at the lowest economic cost.

More immediately, we are looking for action on personal income taxes (PIT) in Alberta. Specifically, in Budget 2019, the province de-indexed its PIT brackets as a temporary measure to help it balance the books. This so-called ‘bracket creep’ is effectively an annual tax hike by stealth because as wages rise (even to keep pace with inflation), more of Albertans’ money ends up being taxed at higher rates.

Now that we are expecting a balanced budget for 2022-23, we are looking for the provincial government to re-index personal income tax thresholds and end the practice of bracket creep.

Jobs: A coordinated and strategic approach to workforce development training that focuses on long-term unemployment

Throughout 2021, Alberta consistently had the highest or second-highest rate of long-term unemployment in the country. Persistent long-term unemployment can lead to slower rates of economic growth, a greater need for social spending, and a weaker fiscal position for the provincial government.

Given this relatively high unemployment rate, combined with the rapidly changing nature of work, labour shortages, and a looming energy transition, we would like to see the government execute a coordinated and strategic workforce development strategy to address these challenges. This will help support a stronger fiscal position for the government. 

Currently, workforce development programs are uncoordinated and delivered out of several different departments. Because inter-departmental collaboration is low, this piecemeal approach to workforce development ultimately causes people to fall through the cracks. To address this problem, we would like to see a central ministry appointed to take the lead in creating and implementing a cohesive workforce development strategy and allocating funds to the service delivery ministries.

At the same time, individuals and businesses face challenges navigating the sheer number of re-skilling and training support programs available. Therefore, we would like to see the government streamline and consolidate existing training supports to make things simpler and more accessible for businesses and individuals.

Two of the most effective training supports the provincial government offers are the Canada-Alberta Job Grant (CAJG) and Alberta Jobs Now (AJN). That said, there are opportunities to adjust these programs to create additional incentives for businesses to train and hire unemployed Albertans.

Specifically, we would like to see the CAJG adjusted to better support training for unemployed Albertans by:

  • Devoting 10% of CAJG funding exclusively to training unemployed Albertans;
  • Removing existing conditions that require businesses to hire an individual or extend a job offer before they can qualify for training support; and
  • Expanding the program so that employees facing termination are eligible for CAJG funding.

And we would like to see the AJN program adjusted to better help the long-term unemployed find work by:

  • Limiting eligibility to employers who hire unemployed Albertans;
  • Expanding incentives to hire people in groups with higher levels of unemployment; and
  • Transitioning the AJN to a permanent, wage-subsidy program.
Climate: A plan to position Alberta as the centre of low-carbon innovation

It is an inescapable reality that much of the progress towards Canada’s 2030 and 2050 climate goals must be made in Alberta. While it will be challenging to decarbonize Alberta’s heavy-emitting industries, therewithin lies tremendous opportunities for our province to become the centre of low-carbon innovation within Canada.  

But before that can happen, we first need a commitment to a simple, predictable, and transparent carbon price over the long term. This is a key to incentivizing the major clean tech investments needed to decarbonize Alberta’s heavy industry, oil and gas, and electricity sectors—especially with their projects’ long-range investment horizons and high capital costs. We would like to see the provincial government clearly signal its intention to price emissions in alignment with the federal government’s plan and resume jurisdiction of the federal fuel tax. The revenues from the fuel tax should be rebated to low-income Albertans and support research, development, and deployment of low-carbon technologies and solutions.

Businesses widely agree that scaling carbon capture, utilization, and storage (CCUS) must be the number one priority for Alberta as it shows tremendous potential to drastically reduce emissions. Our province has the right mix of expertise and geology to become one of the world’s natural homes for CCUS innovation and deployment. We would like to see the province work with industry and the federal government to secure joint funding that will allow Alberta to capture the opportunity to be a global leader in this area.

Lastly, momentum is growing for low-carbon hydrogen as it shows promise as a low-emitting fuel with wide applicability in various industrial processes. To capitalize on hydrogen’s potential for production and use in Alberta, we would like to see the provincial government:

  • Position the Industrial Heartland and the City of Edmonton as Canada’s first major hydrogen hub to provide large-scale proof-of-concept;
  • Build up the hydrogen market with an emphasis on the demand side;
  • Conduct feasibility studies for the long-term economics of deploying hydrogen;
  • Identify and remove technological barriers to hydrogen adoption and invest in R&D to address them; and
  • Establish enabling policies, standards, legislation, and regulation to clear the path for hydrogen production, transportation, and use.
Innovation: A strategy to support Alberta’s fast-growing tech sector

Alberta’s burgeoning tech sector is another tremendous growth opportunity for the province. Technology and innovation represent not only an economic diversification opportunity for Alberta, but they are also critical horizontal enablers as well. A strong local tech sector has spillover benefits in every other industry in Alberta, improving competitiveness, productivity, investment attraction, and long-term economic growth.

Recently, the provincial government has taken several steps to support growth in Alberta’s tech sector (e.g., the Accelerated Tech Pathway). Still, we believe that additional public support measures are needed to add to this momentum. Specifically, we would like to see the following two recommendations from the Innovation Capital Working Group report included in the provincial budget:

  • Establish the Premier’s Advisory Panel on Technology and Innovation, which would provide strategic advice, stewardship, and guidance to the government to ensure that Alberta continues to develop a competitive and robust innovation ecosystem; and
  • Create the Alberta Venture Capital Investment (AVCI) Fund. The AVCI Fund would be a three-year, $200 million public-private co-investment fund, financed out of the Alberta Heritage Savings and Trust Fund. It would de-risk private investment in technology and, by so doing, increase the availability of capital.

These measures will help drive growth in venture capital investment and core tech companies, as well as attract new foreign investment and skilled workers to the province.

People: A commitment to prioritizing health care capacity

Without a doubt, the biggest and most urgent challenge facing Alberta is the rapid spread of COVID-19 variants and their impact on the health and welfare of Albertans and the province’s economic recovery. While the latest Omicron variant is currently trending downward, we cannot be certain that the end of Omicron signals the end of the pandemic at large. As such, we believe it would be prudent for the provincial government to maintain agility in its 2022 budget so that it can quickly respond to pandemic-related needs and costs—particularly to preserve our health care capacity.

In its 2021 budget, the provincial government included $2.5 billion in contingency amounts for disasters, COVID-related health care spending, and recovery initiatives. Given the current uncertainty regarding the pandemic’s future, we would like to see the government include a similar contingency amount in its 2022 budget.

Second, in 2021, the provincial government increased health care spending by a little over 4%, largely in response to the pandemic. The budget also froze health care spending for each of the following two years. The pandemic has not only strained capacity in Alberta’s hospitals, but it has also caused a significant backlog in the delivery of elective surgeries and other medical treatments. While we acknowledge the need for fiscal prudence, considering this reality, we want to see the government allocate more resources in the short term to bolster our health care system and ensure its continued ability and capacity to care for Albertans.

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