March 6, 2013

Alberta budget slashes capital spending on infrastructure

RICHARD GILBERT

staff writer

The 2013 Alberta Budget promises to reduce the provincial deficit in the face of declining oil revenues, by making significant cuts to capital spending on the construction of basic infrastructure and freezing spending.

“We believe that based on population growth and the current condition of infrastructure, that capital spending should be in the range of about $6 (billion) to $ 7 billion,” said Peter Pilarski, who is the southern vice president of Merit Alberta.

“While $5 billion is still significant, we think the government will have a difficult time keeping up with the infrastructure deficit.

"However, given the cuts in other areas, we are happy that there is a relatively consistent level of infrastructure."

Treasury Board and Finance Minister Doug Horner tabled the Alberta 2013 budget today.

He described the budget as a prudent and responsible plan that will undertake necessary structural change in government. Horner said the three-year fiscal plan will respond to declining oil revenues by reining in government spending and keeping a promise not to implement any new taxes or rate increases.

More importantly, this objective will be achieved by making significant cuts to government capital spending.

The 2013 budget estimates total capital spending will drop to $5.209 billion in 2013-14, compared to an estimated $5.454 billion in fiscal year 2012-13.

The decline is expected to continue throughout the three year fiscal plan with capital spending of $5.172 billion in 2014-15 and $4.660 billion in 2015-16.

In 2008-09, which was the peak of the most recent economic boom in Alberta, capital spending was $7.593 billion. Capital spending has fallen in every year since this peak and was $6.528 billion in 2009-10, $5.889 billion in 2010-11 and $5.732 billion in 2011-12.

The president of the Alberta Federation of Labour is far more critical of the cuts to public capital spending than Pilarski.

“The government is committed to maintain a certain level of infrastructure investment, and is going to the capital markets to fund this investment. But, capital spending has been scaled back dramatically from what was proposed last year,” said Gil McGowan.

“The premier has caved in to irresponsible pressure from hard-right members of the Wildrose caucus, who are ideologically opposed to public sector investment.”

A comprehensive review of approved projects has resulted in the cancellation of several projects, which may be deferred beyond 2016.

For example, the Alberta Public Safety Law Enforcement Training Centre in Fort Macleod was cancelled as announced in August, 2012.

In addition, the TransAlta Project Pioneer and Swan Hills Synfuels carbon capture and storage projects are no longer included in the Capital Plan.

“The government should not go back to the old practice of investing during periods of rapid growth,” said McGowan.

“Most economists agree that the public sector should invest counter-cyclically. They should invest in the public sector during slow times. Then slow down during boom times, when they are competing with the private sector for financial resources and labour and the economy can become over heated.”

Pilarski agreed.

“There is always a concern when projects in the books have been removed,” he said. “But, it is important for government to re prioritize when things are tight. It seems that the focus has shifted on building schools, health facilities and critical road infrastructure.”

Total revenues for 2013-14 are estimated at $37.5 billion, while total operating expenses are estimated to be about $38 billion.

An operational deficit of $451 million is expected for 2013-14, followed by surpluses of $1.5 billion and $3.3 billion for 2014-15 and 2015-16.

The third quarter fiscal update for 2012-13, which was released last month, estimated that the deficit for the first nine month of the fiscal year was $1.98 billion.

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