On April 7, 2009, the Minister of Finance and Enterprise, the Honourable Iris Evans, presented Alberta’s 2009 Budget.
As expected, the Budget is a targeted response to the economic downturn that Albertans are facing. The highlights of the 2009 Budget include:
- Increases in both capital and operating expenditures ($36.4 billion);
- Decreases in projected revenues ($31.7 billion);
- Deficit of $4.7 billion to be funded largely by the Sustainability Fund;
- A new fiscal framework expanding the Sustainability Fund;
- Significant infrastructure investments through a three-year capital plan that is forecasted to invest $23.2 billion in capital projects;
- No significant increases in taxes, but little significant tax relief;
- Facilitation of existing energy and environmental initiatives, including incentives for drilling new wells and carbon capture and storage; and
- Spending on Health and Wellness, and Innovation, Research and Development.
The following summary highlights key features of the 2009 Alberta Budget on those issues of greatest interest to clients of Borden Ladner Gervais LLP.
GENERAL ECONOMIC FORECAST
The Province has cited the global recession and lower energy prices as causing a significant decline in expected revenue, and thus the Province has forecasted a contraction in its economy by 2.0 percent in 2009 (based upon Real GDP), with modest growth in 2010 and 2011. Also, the unemployment rate is expected to be approximately 5.8 percent in 2009 and to grow to 6.5 percent in 2010.
The 2009 Budget forecasts approximately $31.7 billion in revenue and $36.4 billion in spending, providing for a deficit of $4.7 billion in 2009-10. Deficits are expected to continue into 2010-11 and 2011-12, though the Province expects a surplus in 2012-13. These figures are based upon the assumption that the average WTI Oil Price will be US$ 55.50 /bbl in 2009-10, US$ 64.50 /bbl in 2010-11 and US$ 72.50 /bbl in 2011-12, as well as the assumption that the average Natural Gas Price will be CDN$ 5.50 /GJ in 2009-10, CDN$ 6.00 /GJ in 2010-11 and CDN$ 6.25 /GJ in 2011-12.
In order to foster growth and stability in the economy, the Budget sets forth a stimulus plan that is intended to inject money into Alberta’s economy. The Province does not intend to raise taxes and, instead, intends to fund the deficit largely through transfers from the Province’s Sustainability Fund.
NEW FISCAL FRAMEWORK
The Province intends to adopt a “new fiscal framework” to provide it with flexibility in addressing current economic challenges. The highlights of the new fiscal framework are as follows:
- Expansion of the Sustainability Fund to include the Province’s Capital Account and certain amounts set aside from other programs (resulting in a total fund of almost $17 billion);
- Deficits will only be permitted if they are offset by transfers from the Sustainability Fund;
- The Government may only borrow for capital purposes;
- In-year increases in operating expenses cannot exceed one percent of total ministry operating expense; and
- There will no longer be a limit on resource revenue that can be used for budget purposes.
The Province expects that these changes will increase transparency and will assist in responding to the current economic challenges.
The Province has stressed infrastructure spending in its Budget, in order to provide short term stimulus to the economy and long-term stability and growth. The key focal point of the Alberta Government is its 2009-12 Capital Plan, which has earmarked $23.2 billion in spending over 3 years, including $7.2 billion in 2009-10, for investment in capital projects. Some of the key highlights pertaining to these initiatives include:
- Expectation that the Province will be able to take advantage of lower construction costs and an increase in the availability of labour;
- Significant investment in health facilities, schools, post-secondary facilities, highways, municipal infrastructure, climate change initiatives and regional water systems;
- $5.8 billion allocated to provincial highways (including the twinning of Highway 63), while $5.6 billion is allocated to municipalities;
- $1.7 billion in spending for climate change initiatives.
Also, in her budget speech, Minister Evans noted that the Province’s surge in infrastructure spending could support approximately 80,000 jobs for Albertans.
Despite its stimulus plan, the Province has not proposed any significant increases in taxes, nor for that matter any corporate tax incentives. The small business tax threshold increases from $460,000 to $500,000, effective April 1, 2009, as previously announced.
No new energy-related tax proposals were announced in this Budget.
ENERGY AND ENVIRONMENT
Generally, the Budget does not propose any new initiatives of interest to the energy and environmental sectors that have not already been announced. Thus, the Budget essentially intends to facilitate the Province’s existing plans. The Budget has highlighted the following:
- $800 million will be spent over three years to fund carbon capture and storage projects, including $100 million in 2009-10;
- $95 million is expected in industry payments to the Climate Change and Emissions Management Fund to support projects and technologies that reduce greenhouse gas emissions;
- Significant spending is forecasted for reclamation projects and environmental management (including approvals, compliance and enforcement);
- $55 million in spending is forecasted for biofuel initiatives over the next two years to support the development of renewable energy;
- Significant funding to support the Water for Life strategy has been forecasted;
- $381 million in spending has been forecasted for new or upgraded infrastructure for the Fort McMurray area over the next two years; and
- Oil and Gas well drilling incentives, which are expected to cost the Province $1.5 billion in revenues over the next two years, are expected to support 150 jobs for each new well drilled.
INNOVATION, RESEARCH AND TECHNOLOGY
The province has proposed $104 million in programs supporting innovation, research and technology commercialization initiatives. It should also be noted that the provincial scientific research and development experimental (SR&ED) tax credits, which were announced last year, came into effect this January; however, there were no changes announced in the Budget with respect to this initiative.
HEALTH AND WELLNESS
The Budget has earmarked $12.9 billion for Health and Wellness expenditures. This includes $7.7 billion for operating funding for delivering health services across the province, which represents an increase of $550 million from last year. Also, significant funding has been forecasted for capital projects, reaching the $1 billion range in both 2010-11 and 2011-12. Among other things, these expenditures have been earmarked for expansion projects, construction of new health facilities, health information systems and vaccines.