The budget on 27 February is watched very closely by the usual suspects which include think tanks, credit rating agencies, government lobbyists, and provincial agencies (e,g, Alberta Health Services), the education, health care sector and post secondary institutions).
Oil prices
As is customary the number that will be focused on is the assumption for bitumen prices and the value of the Canadian dollar. Analysts will also look at the forecast for the fiscal year ending at the end of March.
A key consideration in the broader economic forecast is whether U.S. trade policy will cause a recession in this country and how Alberta’s fossil fuel exports will fare. Even with the Trans Mountain extension, most Alberta oil and natural gas flows to the United States. We can expect economic and fiscal scenarios that include a serious tariff war. There is no doubt a ten per cent tariff will do some damage to the Alberta economy. That said, the U.S. could enter a recession and that would likely mean lower demand and lower prices. One dollar drop in oil prices annualized would cost the Alberta treasury approximately $630-million while a one cent higher dollar will cost the provincial coffers $490-million annualized. Expect a fairly conservative oil price assumption this Thursday. Last year’s forecast was U.S. $74.50 and that looks very close to actual.
Alberta Investment Management Corporation (AIMCo)
One of the areas I have been following is the politicization of the Alberta Investment Management Corporation (AIMCo) under the close tutelage of the provincial government. The removal of the board last November, appointment of long-time, loyal civil servant to interim CEO, and appointment of Stephen Harper as AIMCo chair must be a concern for all public sector employees and retirees.
There may be further details about what additional plans the government has for AIMCo. Public sector pension boards have a rare opportunity to gain board seats on a re-constituted AIMCo. Failure to do so will mean further politicization.
Heritage Fund
In addition to watching what the government says about AIMCo, there is also the recent announcement of a refresh of the Heritage Fund with the creation of a Heritage Fund Opportunities Fund (HFOC) under the chairmanship of Stephen Lougheed, son of E. Peter Lougheed. My hunch is that this organization will be headquartered in Calgary and some AIMCo personnel will join HFOC.
Expenditures
We can expect some modest increase to spending based on the government’s rule of growing spending by inflation plus population growth. This means continuing austerity for the health system, education and post-secondary institutions with a greater proportion of arts and humanities students and faculty.
ATB Financial
Recently, an Order in Council authorized the Finance Minister to borrow up to $11-billion and to on-lend to ATB Financial. No announcement was made by either Horner’s office or ATB. It is possible we will see a mention of some new financing program that the government will provide through ATB. Historically, government-wide lending programs have included banks and credit unions, but this government is certainly not bound by precedent. The financing could be directed to needed or affordable housing and long-term care facilities.
The 13 July 2023 mandate letter to Horner from Smith reads in part
Reviewing the mandate of ATB and making recommendations on how it can become more competitive in financing Alberta businesses and homebuyers, and making other recommendations to strengthen the institution’s financial position to ensure it remains viable and contributes to Alberta’s unique provincial economy in the long term.
Alberta Revenue Agency
A key part of the Free Alberta Strategy and included in Horner’s mandate letter has been the establishment of a revenue agency for the collection of personal taxes. Alberta already has a corporate income tax administration. Little has been said of this initiative but this is a central plank of FAS thinking. Expect some announcement or report on the status of this initiative.
Alberta Pension Plan
This was an important part in the Free Alberta Strategy with antecedents going back to the Western Canada Concept in the early 1980s and a key component of the Firewall letter, which was signed by Stephen Harper. The issue has been largely dormant since the end of 2023 when Canada’s chief actuary was asked to look at how the Canada Pension Plan Act’s withdrawal provisions would be interpreted. Premier Smith wanted a specific number, but according to Trevor Tombe, Professor of Economics at the University of Calgary, a number based on the Chief Actuary’s position can be simply derived. This number is at least one half or less than the value advertised by the Smith government in its original proposal. Tombe thinks there is still the possibility of the government pursuing this because there may be some room to reduce premiums. The government may wish to pursue this in spite of strong public disapproval numbers because it dovetails with their Heritage Fund and AIMCo plans. There may be an update in Thursday’s budget.
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