2007 Alberta Budget Highlights

Alberta’s Minister of Finance, the Honourable Lyle Oberg, delivered the Province’s 2007 Budget on Thursday, April 19, 2007. This budget is the first of Premier Ed Stelmach’s tenure since being elected leader of the Progressive Conservative Party in November of 2006. It is also the Province’s 14th consecutive balanced budget.

The Budget is entitled ‘Managing our Growth’. This theme highlights the Government’s justification for the massive increases in spending described in the Budget. Minister Oberg indicated that such spending was necessary to cope with the Province’s unprecedented economic growth.

The Province plans to spend a record $33 billion in 2007; this is a roughly 10% increase in spending over last year. The projected surplus for this upcoming fiscal year is "only" $2.2 billion — a substantially lower number than in years past ($7.4 billion was last year’s surplus). That said, this Government has had a long record of underestimating surpluses, only to finish the year with billions of dollars more than expected. The Government forecasts total resource revenues of $10.3 billion for the next year based on oil prices of $58.00 (WTI US$/BBL) and natural gas prices of $6.75 (CDN$/GJ).

The Budget’s increased spending has been made possible by Alberta’s phenomenal economic growth (6.9% last year), most of it in the energy sector. Minister Oberg, affirming the fears of an increasing number of Albertans who recognize this kind of spending is unsustainable over a long period of time, indicated that the Government of Alberta is aware that oil and gas prices are forecasted to either decrease or moderate over the next several years.

To prepare for this tempering in revenue projections, the Minister promised program spending reviews, tight in-year operating spending limits, and a surplus allocation strategy which will see amounts over the Government’s projected surpluses go one-third towards provincial savings and investments (i.e. the Alberta Heritage Fund), with the remaining two-thirds allocated to infrastructure projects and maintenance.

With an estimated infrastructure deficit of about $10 billion, the Province plans to invest $18.2 billion over the next 3 years in the provincial Capital Plan, which is earmarked for roads, schools, hospitals, and other infrastructure needs. This is a staggering 37% increase in capital spending over last year’s three-year projection and reflects the increased need for infrastructure as Alberta continues to grow rapidly. Putting this number in perspective, Alberta’s capital spending commitment this year ($6.7 billion) is almost four times the per capita average of what other provinces spend on infrastructure.

Highlights (over 3 years) include:

• $4.3 billion for municipalities
• $1.3 billion for schools, including funding for 47 already announced new or replacement schools, 24 modernization projects, 200 new modular classrooms, as well as 3 new school projects in Edmonton, Calgary, and Lethbridge
• $3 billion for health facilities and equipment
• $4.6 billion for provincial highways, including continued twinning of sections of Highway 63 south of Fort McMurray and Highway 43 north to Grande Prairie, as well as continued work on ring roads in Edmonton and Calgary
• $1.6 billion for post-secondary facilities primarily focused on the Universities of Calgary and Alberta

In the recent Throne Speech, the Government promised to develop a long-term funding arrangement for municipalities in order to better assist them plan and manage growth. The Budget follows through with that promise, transferring $1.4 billion to Alberta's municipalities every year for 10 years. This unconditional grant will be ramped up to the $1.4 billion per year amount over the first 4 years of the stated 10-year period. From this new funding, $100 million this year is to be used by municipalities for affordable housing initiatives.

Funding for provincial policing will increase by $11.5 million, or 7.6 per cent, to $162.5 million, providing the full-year costs of the 80 new RCMP officers that were added last year, and will provide for additional policing in First Nations communities.

The Budget increases operational funding for health authorities by $574 million, or an average of 9.5 per cent, to $6.6 billion. This brings the percentage of total provincial spending related to healthcare to 36.9%. Much of this increase is accounted for in the $3 billion over 3 years allocated for health care facilities.

Another major portion of the health budget increase will be spent on improving the sustainability and efficiency of the healthcare system through investments in primary care networks, a provincial pharmaceutical strategy, and improvement of electronic health records.

$2.4 billion of the $6.6 billion health budget will be spent on physician services, while funding for non-group health benefits (such as those provided through Alberta Blue Cross) will rise $64 million or 9.6 per cent this year to $732 million, in order to increase the number of insured medical procedures.

$35 million, a 22% increase, will be set aside for the Small Class Size Initiative, which supports the retention of the 2,500 new teachers already hired under the initiative. Similarly, post-secondary operational funding will be increased by $117 million, to a total of $1.8 billion.

The environment received its share of the green as well. $164 million, a $9.8 million or 6.3% increase from the previous year, will be spent on environmental initiatives, including those related to developing the oil sands in a more environmentally friendly manner.

Although not part of the Ministry of Environment’s budget, the Government has placed an obvious emphasis on water management facilities and programs. It will invest $679 million to fund regional water projects, the Water for Life strategy, water treatment plants, wastewater facilities, irrigation rehabilitation, as well as government dams, canals, and erosion-control infrastructure.

In what may prove to be an unpopular omission considering the massive increases in provincial spending, Minister Oberg did not announce any new meaningful personal or business tax relief.

The only tax-related initiatives in the Budget included a near doubling of tax credits for total annual charitable donations over $200, an increase in the education tax credit for full and part-time students, and a 16% increase in tobacco taxes to encourage smoking cessation.

The top marginal personal income tax rate remains unchanged at 39% (29% federal and 10% provincial). Similarly, no changes were announced to the existing general corporate income tax rate (10%) or the small business income tax rate of 3%. Vancouver, British Columbia V7X 1T2 BLG Government Relations Services The Government Relations Group at Borden Ladner Gervais represents clients in their relations with governments in Canada at all levels - Municipal, Regional, Provincial and Federal and with Departments, Boards, Authorities and Agencies of each of those Governments. BLG professionals bring extensive experience working within the public sector and maintaining excellent contact with key decision-makers. We provide insight with respect to new legislation, assessment of complex policies and identification of key contacts within the public service regardless of department and including appropriate elected officials.

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