The Top Line
The Government of Alberta unveiled its Budget 2017/18 today. Overall, Budget 2017/18 is a continuation and further implementation of Budget 2016/17. That means the NDP Government is continuing its policy of using Government spending to cushion the impacts of low energy prices and the associated recession in Alberta. Budget measures aimed at reducing consumer expenses and increasing quality of life include:
- Not levying any new taxes;
- Reducing mandatory elementary school fees by 25%;
- Extending the freeze on post-secondary school tuition;
- Continued implementation of a $29.5 billion infrastructure plan (announced in Budget 2016/17); and
- Creating consumer electricity rate ceiling of 6.8 cents per kilowatt hour (effective June 1, 2017).
As detailed below, a slowly improving fiscal environment, due to growth in projected non-renewable natural resources royalties, may bode well for the Province. How that situation evolves bears watching, as 2017/18 is the first full fiscal year that many provisions of the Government’s Climate Leadership Plan are in effect.
Economic and Fiscal Outlook
Budget 2017/18 has a three-year fiscal forecast horizon, during which the Government expects the provincial economy to grow. The Government projects that real GDP will grow by 2.6% in 2017/18; though private sector economists project a higher GDP growth rate.
Early signs of a rebound in the energy sector are a centrepiece of Budget 2017/18, with the Government projecting higher revenues from non-renewable natural resources (including bitumen, conventional oil, and natural gas royalties) over the next three fiscal years. However, those royalties will remain below 2014/15 levels for the foreseeable future.
In that context, the Government projects both revenues and expenditures to grow over the next three fiscal years, with resulting (projected) budget deficits of $10.3 billion in 2017/18, $9.7 billion in 2018/19, and $7.2 billion in 2019/20. The Government projects its total spending at $54.9 billion in 2017/18.
The Climate Leadership Plan (CLP)
The CLP was announced in Budget 2016/17. However, the carbon levy created under the CLP took effect January 1, 2017 – making 2017/18 the first full fiscal year that the levy will be in place.
The carbon levy is charged on sales of fossil fuels that emit greenhouse gases when combusted, at a rate of $20 per tonne, rising to $30 per tonne in 2018. The Government projects that the levy will generate $3.9 billion in gross revenue over the next three fiscal years, more than half of which will be recycled through a small business tax cut and household rebates. The balance will be invested in programs aimed at reducing emissions and diversifying the economy.
Taxation and Tax Credits
Although there are no new taxes in Budget 2017/18, several tax reductions and credits of interest to the business sector are effective as of January 1, 2017 – including:
- A reduction of the small business tax rate to 2% from 3%;
- The Alberta Investor Tax Credit and the Capital Investment Tax Credit can be claimed for 2017; and
- The already-existing Capital Investment Tax Credit is being extended for a year.
What This Means to You
The NDP holds a majority in the Legislative Assembly, and thus have the ability to pass all budget-related items into law quickly. The NDP is in the middle of its mandate, so many of the provisions in Budget 2017/18 are fully within the power of the Government to implement.
However, the Opposition environment in Alberta is entering a state of flux. The leadership election for the Progressive Conservative (PC) Association of Alberta occurs this Saturday, March 18. Expected winner Jason Kenney has long been clear about his desire to merge the PCs with the Official Opposition Wildrose Party – an idea to which Wildrose Leader Brian Jean recently said he was open. The potential merger process bears close monitoring for a resurgent Conservative political movement in Alberta.
Please contact us if you have any questions.