Capital Spending In Alberta Election Issue for 2109

As part of each provincial budget a Capital Plan is prepared to detail where government intends to allocate capital. Its a spending plan for buildings, roads and other capital items for the next four or five years. Here are the last four Alberta capital plans’ total amounts that government forecasted they would spend in each fiscal year.

    Every day, several times a day, a thought comes over me.
I owe more debts than I ever can pay back more money than I’ll ever see          Lyrics by Woody Guthrie

  • Alberta Capital Plans Total Spending forecast by Fiscal Year

    Billions of dollars

    Fiscal Year

    2014-15

    2015-16

    2016-17

    2016-17

    2017-18

    2018-19

    2019-20

    PC Budget 2015*

    $7.0

    $6.9

    $6.5

    $6.3

    $5.8

    $5.5

    ND Budget 2015*

    $7.8

    $8.4

    $8.3

    $7.0

    $6.4

    ND Budget 2016

    $7.9

    $8.4

    $8.2

    $7.3

    $7.2

    ND Budget 2017

    $9.1

    $8.0

    $8.1

    $7.4

    Actual  Spending

    $6.2

    PC Govt

    $6.6**

    NDP Govt

    $6.6**

    NDP Govt

    All Gov”t Expenses

    $44.2

    $48.9

    $53.7

    $54.9

    Estimated

    $56.6

    Estimated

    $58.0

    Estimated

  • *In 2015 there were two budgets, the Progressive Conservatives tabled a budget in April but it wasn’t implemented because they lost the election. The NDP issued a new-16 budget in the fall.

  • **Actual spending lags behind budgeted amount usually due to construction delays

  • In 2015 industry oilsands spending declined by $10 billion

Capital Plan Allocations for 2017

     Health facilities 15%

     Maintenance of existing assets 16%

     Municipalities 26%

     Climate Change* 13%

     Roads and bridges 10%

      Schools 09%

     Other 11%

Climate Change includes small business tax reduction, low income subsidy, the household lightbulb fund, ‘green’ energy project subsidies and coal phase out payments (roughly $1.8 billion annually)

David Dodge’s Infrastructure Report

As part of it planning for 2015 the NDP asked David Dodge former Governor of the Bank of Canada to prepare a report and recommendations for capital spending.

The report’s main findings were:

  • Alberta’s “capital stock” i.e the value of infrastructure compared to GDP output was below average

  • Since Alberta was in recession spending by government would create jobs and construction costs would be lower and spending would generally stabilize the economy

  • Alberta had room to debt finance more infrastructure spending. Dodge believes that “attempting to maintain a balanced budget each and every year will exaggerate cyclical economic volatility and have a perverse impact on long run growth.”

  • Dodge’s report also recommends that government borrow for operating costs, assuming a return to reasonably robust oil prices in the medium term. If oil prices remain low he cautions that another source of revenue must be used to pay the debts.

  • Dodge estimated that the province would not have much difficulty managing the debt until about 2025

  • He also recommends toll charges on ring roads – but government dropped that hot potato!

Fraser Institute

The Fraser Institute, a conservative think tank, does not buy the ‘spend now pay later’ approach.

  • They note that much of the social or green infrastructure doesn’t actually improve the economy. Hockey rinks, social housing projects don’t improve productivity or directly strengthen the economy – although they are welcomed by the people who use them.

  • They also note that Canada’s infrastructure is in pretty good shape comparatively so massive government infusions may not be needed.

  • They were enthusiastic about toll roads because those who use the roads pay for them.

Severely Normal Albertans…..

are allowed to rightly feel a bit discouraged after reading this. Nor will it make you feel better to be remind that resource revenue dropped by $8.0 in 2015.

  • Oilsands capital investment dropped by $10 billion and drilling activity fell through the floor in 2014. The choice to add a couple billion of government spending per year had just a minor impact on everything expect provincial debt.
  • The NDP increased capital spending by roughly $1.5 billion dollars annually over the planned expenditures of the previous PC government. Thus, about 15% of the annual deficit is a result of increased capital spending

  • With the exception of schools, Alberta infrastructure was in pretty good shape. Thus as we entered the recession this was an area that government could have reduced spending

  • But instead the NDP adopted David’s Dodge’s advice that government increase capital spending

  • Furthermore some of the capital is unexpectedly spent retiring coal fired plants when government miscalculated that it could simply regulate them out of existence

  • And as Alberta emerges from the recession, government capital spending is going up not down. And a considerable amount of the spending isn’t aimed at productivity improvement to aid the economy.

In the 2019 election the UCP and Alberta parties will target capital spending for reductions. It is likely that some projects will be endorsed but on a slower pace. Others will be cancelled. The spending on the Climate leadership plan will be greatly reduced as a conservative government will re-think the entire approach.  As provincial debt climbs past $60 Billion in 2019 they will have a powerful vote getting argument!

If the NDP are to win the next election they will have to convince voters that government debt was necessary in recessionary times and deficits are still needed. The NDP will have to work hard to encourage the beneficiaries of its programs to vote.  

In the alternative they might strongly consider bringing a 2018-19 budget that demonstrates much more fiscal restraint!