Business
Federal government should change course in upcoming budget to revitalize economy
From the Fraser Institute
By Jake Fuss and Grady Munro
From 2020 to 2030, Canada is projected to record the slowest rate of per-person GDP growth among 38 developed countries in the OECD. Simply put, Canada’s economy is stalling relative to its own past performance and other comparable countries around the world.
The Trudeau government will table its next budget on April 16, and it must address Canada’s stagnant economy. While the economy won’t turn around overnight, the government should recognize that its current policy approach isn’t working.
According to a recent Leger poll, nearly two-thirds of Canadians have a “poor” or “very poor” view of Canada’s economy. And it’s no wonder they feel this way. Canada is experiencing an economic growth crisis. From 2013 to 2022, inflation-adjusted per-person GDP (a broad measure of living standards) grew at its slowest pace since the Great Depression in the 1930s. Since the Trudeau government took office in 2015, per-person GDP (inflation-adjusted) in Canada has grown by only 1.9 per cent—nearly one-eighth the growth rate in the United States over that same period.
Moreover, from 2020 to 2030, Canada is projected to record the slowest rate of per-person GDP growth among 38 developed countries in the OECD. Simply put, Canada’s economy is stalling relative to its own past performance and other comparable countries around the world.
Why?
While there are many reasons for this slump in economic activity, consider the collapse of business investment in Canada. From 2014 to 2021, business investment per worker (excluding residential construction) fell from C$18,363 to C$14,687. In contrast, during that same period, business investment per worker in the United States grew from C$23,333 to C$26,751. In other words, Canada experienced the equivalent of a $43.7 billion decline in annual business investment while the U.S. enjoyed a C$585.1 billion increase (all figures adjusted for inflation).
Business investment is crucial for economic growth (and subsequent increased living standards) because it provides the resources needed to equip workers with tools and technology, for businesses to expand operations and become more productive, and for new businesses to enter the market. This in turn fuels innovation and productivity, which are key determinants of living standards.
Which brings us back to the Trudeau government. The collapse of business investment in Canada has been due in part to recent federal policy including Bill C-69, which introduced new and costly assessment criteria for energy projects, Bill C-48, which restricts tanker traffic off British Columbia’s north coast, and the forthcoming emissions cap on oil and gas, which will increase the cost of doing business in Canada.
Clearly, Ottawa has thrown up stiff regulatory barriers that deter investment in Canada’s energy and mining sectors. According to a 2023 survey of oil and gas executives, more than two-thirds of respondents viewed Canada’s regulatory environment as a deterrent to investment. And on the fiscal front, a string of deficits and massive debt accumulation create uncertainty around future tax increases, which gives investors another reason to take their money elsewhere.
Finally, the Trudeau government also believes that government should play an active role in the economy by handing out corporate welfare and subsidies to favoured industries and firms (i.e. electric vehicle battery industry). But when government tries to pick winners and losers in the market, it may actually inhibit rather than help the economy. Instead, the government should leave decisions in the free market to the investors, businessowners and entrepreneurs who have firsthand knowledge of their industries and businesses.
The Trudeau government has done little to promote economic growth and raise living standards for Canadians. While it will take time to turn things around, in its upcoming budget the government should finally change course and help revitalize the Canadian economy.
Authors:
From the Fraser Institute
By Tegan Hill
According to the recent mid-year update tabled Thursday, the Smith government projects a $4.6 billion surplus in 2024/25, up from the $2.9 billion surplus projected just a few months ago. Despite the good news, Premier Smith must reduce spending to avoid budget deficits.
The fiscal update projects resource revenue of $20.3 billion in 2024/25. Today’s relatively high—but very volatile—resource revenue (including oil and gas royalties) is helping finance today’s spending and maintain a balanced budget. But it will not last forever.
For perspective, in just the last decade the Alberta government’s annual resource revenue has been as low as $2.8 billion (2015/16) and as high as $25.2 billion (2022/23).
And while the resource revenue rollercoaster is currently in Alberta’s favor, Finance Minister Nate Horner acknowledges that “risks are on the rise” as oil prices have dropped considerably and forecasters are projecting downward pressure on prices—all of which impacts resource revenue.
In fact, the government’s own estimates show a $1 change in oil prices results in an estimated $630 million revenue swing. So while the Smith government plans to maintain a surplus in 2024/25, a small change in oil prices could quickly plunge Alberta back into deficit. Premier Smith has warned that her government may fall into a budget deficit this fiscal year.
This should come as no surprise. Alberta’s been on the resource revenue rollercoaster for decades. Successive governments have increased spending during the good times of high resource revenue, but failed to rein in spending when resource revenues fell.
Previous research has shown that, in Alberta, a $1 increase in resource revenue is associated with an estimated 56-cent increase in program spending the following fiscal year (on a per-person, inflation-adjusted basis). However, a decline in resource revenue is not similarly associated with a reduction in program spending. This pattern has led to historically high levels of government spending—and budget deficits—even in more recent years.
Consider this: If this fiscal year the Smith government received an average level of resource revenue (based on levels over the last 10 years), it would receive approximately $13,000 per Albertan. Yet the government plans to spend nearly $15,000 per Albertan this fiscal year (after adjusting for inflation). That’s a huge gap of roughly $2,000—and it means the government is continuing to take big risks with the provincial budget.
Of course, if the government falls back into deficit there are implications for everyday Albertans.
When the government runs a deficit, it accumulates debt, which Albertans must pay to service. In 2024/25, the government’s debt interest payments will cost each Albertan nearly $650. That’s largely because, despite running surpluses over the last few years, Albertans are still paying for debt accumulated during the most recent string of deficits from 2008/09 to 2020/21 (excluding 2014/15), which only ended when the government enjoyed an unexpected windfall in resource revenue in 2021/22.
According to Thursday’s mid-year fiscal update, Alberta’s finances continue to be at risk. To avoid deficits, the Smith government should meaningfully reduce spending so that it’s aligned with more reliable, stable levels of revenue.
Author:
Alberta maintains a balanced budget while ensuring pressures from population growth are being addressed.
Alberta faces rising risks, including ongoing resource volatility, geopolitical instability and rising pressures at home. With more than 450,000 people moving to Alberta in the last three years, the province has allocated hundreds of millions of dollars to address these pressures and ensure Albertans continue to be supported. Alberta’s government is determined to make every dollar go further with targeted and responsible spending on the priorities of Albertans.
The province is forecasting a $4.6 billion surplus at the end of 2024-25, up from the $2.9 billion first quarter forecast and $355 million from budget, due mainly to higher revenue from personal income taxes and non-renewable resources.
Given the current significant uncertainty in global geopolitics and energy markets, Alberta’s government must continue to make prudent choices to meet its responsibilities, including ongoing bargaining for thousands of public sector workers, fast-tracking school construction, cutting personal income taxes and ensuring Alberta’s surging population has access to high-quality health care, education and other public services.
“These are challenging times, but I believe Alberta is up to the challenge. By being intentional with every dollar, we can boost our prosperity and quality of life now and in the future.”
Midway through 2024-25, the province has stepped up to boost support to Albertans this fiscal year through key investments, including:
- $716 million to Health for physician compensation incentives and to help Alberta Health Services provide services to a growing and aging population.
- $125 million to address enrollment growth pressures in Alberta schools.
- $847 million for disaster and emergency assistance, including:
- $647 million to fight the Jasper wildfires
- $163 million for the Wildfire Disaster Recovery Program
- $5 million to support the municipality of Jasper (half to help with tourism recovery)
- $12 million to match donations to the Canadian Red Cross
- $20 million for emergency evacuation payments to evacuees in communities impacted by wildfires
- $240 million more for Seniors, Community and Social Services to support social support programs.
Looking forward, the province has adjusted its forecast for the price of oil to US$74 per barrel of West Texas Intermediate. It expects to earn more for its crude oil, with a narrowing of the light-heavy differential around US$14 per barrel, higher demand for heavier crude grades and a growing export capacity through the Trans Mountain pipeline. Despite these changes, Alberta still risks running a deficit in the coming fiscal year should oil prices continue to drop below $70 per barrel.
After a 4.4 per cent surge in the 2024 census year, Alberta’s population growth is expected to slow to 2.5 per cent in 2025, lower than the first quarter forecast of 3.2 per cent growth because of reduced immigration and non-permanent residents targets by the federal government.
Revenue
Revenue for 2024-25 is forecast at $77.9 billion, an increase of $4.4 billion from Budget 2024, including:
- $16.6 billion forecast from personal income taxes, up from $15.6 billion at budget.
- $20.3 billion forecast from non-renewable resource revenue, up from $17.3 billion at budget.
Expense
Expense for 2024-25 is forecast at $73.3 billion, an increase of $143 million from Budget 2024.
Surplus cash
After calculations and adjustments, $2.9 billion in surplus cash is forecast.
- $1.4 billion or half will pay debt coming due.
- The other half, or $1.4 billion, will be put into the Alberta Fund, which can be spent on further debt repayment, deposited into the Alberta Heritage Savings Trust Fund and/or spent on one-time initiatives.
Contingency
Of the $2 billion contingency included in Budget 2024, a preliminary allocation of $1.7 billion is forecast.
Alberta Heritage Savings Trust Fund
The Alberta Heritage Savings Trust Fund grew in the second quarter to a market value of $24.3 billion as of Sept. 30, 2024, up from $23.4 billion at the end of the first quarter.
- The fund earned a 3.7 per cent return from July to September with a net investment income of $616 million, up from the 2.1 per cent return during the first quarter.
Debt
Taxpayer-supported debt is forecast at $84 billion as of March 31, 2025, $3.8 billion less than estimated in the budget because the higher surplus has lowered borrowing requirements.
- Debt servicing costs are forecast at $3.2 billion, down $216 million from budget.
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