March 13, 2013

Alberta budget scales back on capital spending

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 holding the line on 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, 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 (spending).”

Treasury Board and Finance Minister Doug Horner tabled the Alberta 2013 budget last week, which aims to undertake structural change in government, in response to declining oil revenues.

Horner said the three-year fiscal aims to get control of spending, while not increasing taxes.

According to Statistics Canada, the population of Alberta was about 3.9 million in October, 2012.

During the third quarter of 2012 the population increased by 33,100 (0.9 per cent), which was the fastest provincial rate of growth in Canada.

Total population growth is expected to be close to 100,000 people in 2013.

“The finance minister calls this a ‘hold-the-line’ budget, but really this is a cut-to-the bone budget,” said Gil McGowan, president of the Alberta Federation of Labour.

“In a province that’s growing by 100,000 people a year, a zero per cent increase amounts to a substantial cut.”

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

An operating expense of $36.4 billion represents no change from last year.

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 months of the fiscal year was $1.98 billion.

Budget 2013 will eliminate the provincial deficit 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 $4.66 billion in 2015-16.

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

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

In 2008-09, which was the peak of the most recent boom in Alberta, capital spending was $7.593 billion.

Capital spending has fallen 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.

McGowan argued that the government has squandered its windfall oil revenues, while at the same time making cuts that have a negative impact on Albertans.

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

In 2013-14, $4.3 billion of the capital plan will be funded through direct borrowing, in addition to continued use of public-private partnerships.

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