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Wednesday, April 08, 2009

alberta budget 2009: tough economic times.

These tough economic times have presented the Government of Alberta with a tougher fiscal reality from which to draw the 2009 provincial budget than what has become usual. Our new $25-million provincial slogan may be "Freedom to Create. Spirit to Achieve," but I felt there was little evidence of the new slogan in this status-quo budget. Some funding cuts, some funding increases, no substantial tax-cuts or increases (with the exception of increases in property-tax and alcohol tax...).

Tailor made to avoid attracting sensational headlines, Alberta's first deficit budget in 15-years included a deficit in creativity and achievement (if you exclude amending the Fiscal Responsibility Act to allow for deficits). While I don't believe this was an awful budget, it is becoming increasingly apparent that the current government does not have a serious long-term vision to guide Alberta through these tough economic times.

Here are some of my thoughts:

Diversification. In these tough economic times, government resource revenues have dropped from $12 billion in 2008 to $6 billion in this budget. As a province that has decades worth of dependence on collecting resource revenues, it shouldn't be a shock to anyone that we need to be smarter about how we plan and finance our government spending. Surprisingly, I actually believe that Premier Ed Stelmach and Finance Minister Iris Evans somewhat understand this (which is probably one of the reasons we aren't seeing across the board massive spending cuts in this budget). The Alberta Ingenuity Fund was a good start, but I would like to see the government focus on and put serious funds behind the development of new Research & Development and Innovation strategies in areas like renewable energy (if you're looking for ideas, check out the Pickens Plan).

Educate. Educate. Educate. Funding levels remain constant in post-secondary education, including the continuation of the promised 6% annual increase, which will continue to allow annual tuition increase to be indexed to CPI. One of the keys to finding our way out of tough economic times is education. As our unemployment rates rises due to slowing economic growth, one of the smartest moves our political leaders could make is to invest more in education. Since the beginning of the year, there are many un-skilled workers who have been laid off, and by giving them the resources to earn an education, whether it be in a skilled trade or University degree program, the province with be better off with a more skilled and educated workforce.

Carbon Capture & Storage (aka, the Environment). During her speech to the Legislature, Minister Evans compared the Government of Alberta to a family, who, when facing tough economic times, needs to tighten the household budget. If Evans' metaphor actually applies, I guess it includes a $2 billion fund for trips to the casino. This year, the PC government plans to gamble $100 million on Carbon Capture & Storage (CCS) research, and $800 million over the next two years (and a remaining $1 billion over the next 12 years) on the technologically and economically unproven CCS. In recent statements to the media, both Stelmach and Energy Minister Mel Knight may have admitted that CCS would be more effective in capturing carbon from coal-burning power plants than capturing carbon from the oil sands. Other than promised future funds for CCS research, this budget does very little to address many of the larger environmental issues facing us in these tough economic times.

Public Transit. Will these tough economic times lead more Albertans to park their Dodge 4x4 (with a Hemi) and wait at the corner for the bus? The Green Trip Fund will distribute $10 million this year, and $520 million over the next three years into public transit initiatives. Investing in Alberta's urban centers, but this a far cry from the originally promised $2 billion fund. Paired with a decrease in the Municipal Sustainability Initiative (from $450 million in 2008 to $100 million in 2009), and it becomes increasingly apparent that serious investment in municipal development is needed to get municipal infrastructure in our cities where it needs to be.

Perspective on Economic Growth. Alberta's economy has depended on revenue from cyclically priced resource commodities for decades and has seen much worse economic times. After years of unsustainable growth, no one should be surprised that Alberta's economy has slowed down and now is facing a 1.8% contraction. With +$50 barrels of oil and 2% projected economic growth next year, Alberta is in a much better position than it was during previous economic recession. Let's please try to keep some historical perspective in mind when we're talking about these tough economic times.


Aden said...

Dave are collecting bonus points for every time you write 'tough economic times'?

More budget analysis to come?

Jennifer said...

Nice initial thoughts - I'm not surprised but still sorry to see no savings efforts (blogged on at my site) ... and municipalities will definitely feel the pinch from reduced MSI monies.

I also was not entirely surprised to see the Wild Rose Foundation "absorbed" into the Community Initiatives Program - I'm optimistic that this is a consolidation of resources in effort to make their granting programs more lean and mean ... especially in these "tough economic times" ;) lol


Jeff J. said...

Jennifer, I'm a little confused by your comment about savings. Are you saying that if your paycheque didn't cover all of your monthly expenses, but you had thousands in a savings account, you would still put money away into savings despite not having enough money to buy food?

I guess i'm just confused as to why saving 21 billion dollars in 5 years isn't enough to get us through a couple lean years?

To me you just seem to be making generalizations that are untrue.

Balanced Reporting said...

Some comments from Albertans on the Budget:

"People underestimate what this province has done and is doing. Their commitment to education is
their version of a fiscal stimulus. They're building knowledge infrastructure, human infrastructure.
They have shown extraordinary wisdom in maintaining the momentum, in converting the
investments they have made in us into dividends." - President Samarasekera, University of Alberta.

"Alberta remains one of the top provinces," Michael Gregory, Senior Economist,BMO Capital Markets

"They're spending money they've already saved," Trevor Richardson, Alberta Farmer.

Perhaps the Budget isn't all bad. Perfect? No.

Anonymous said...

Dave you are bang on about the need to maintain funding for post-secondary. I doubt that you take requests, but I would encourage you to dedicate one of your posts on this topic. A commitment to education and research will allow us to diversify our economy which in turn will protect us from future hard times. Good on the gov't for maintaining the 6% increase to the operating grant.

Jennifer said...

Perfect budget, no, and spending was to be expected ... it was nice to see the commitment to education & training and the raised income threshold for small businesses.

@ Jeff, if you'd linked to and actually read my blog post (with supporting researched articles), I refer to the Alberta Heritage Fund (not the Sustainability Fund), which the province undertook to study through an advisory committee and make recommendations on for consideration for this budget cycle. I stand by my informed opinion, not generalizations.