NDP budget signals shift in Alberta’s economic direction

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Alberta's NDP government is pouring $34-billion into infrastructure projects over the next five years, creating a program that gives companies as much as $5,000 for each new hire, and increasing taxes on tobacco and alcohol for the second time in a year.

The measures, tabled at a time when the New Democrats are forecasting near-record deficits, unprecedented debt and a provincial economy faltering in the face of low oil prices and steady layoffs, are considered the most interventionist steps a government has taken in the province's modern history.

The shift in Alberta's economic direction comes in the NDP's first budget since it took office in a dramatic upset over the long-ruling Progressive Conservatives five months ago. Premier Rachel Notley's fiscal program will also see the province's rainy-day fund run dry and Alberta begin to borrow money to fund day-to-day expenses, resulting in the province's first operational debt since 1993, when Ralph Klein was still in his first year as premier.

The province will run a deficit of $6.1-billion this year, just short of Finance Minister Joe Ceci's worst-case scenario and the largest in two decades.

Mr. Ceci says demand for the government's intervention is urgent at a time of record-low borrowing costs. Increasing the province's building program by 15 per cent with money dedicated to schools, hospitals and transit, Mr. Ceci is betting that the large investment will put back to work construction workers and engineers who have been idled by the slowdown in the province's energy sector.

"Now, some critics will believe and say that the solution to these tough times would be to fire thousands of nurses and teachers. Well, we aren't going to do that," Mr. Ceci said on Tuesday afternoon. "This budget lays out a responsible economic plan that will serve as a shock absorber to our short-term challenges and grow the economy over the long term."

Underscoring the financial strains facing the province and its oil patch, Royal Dutch Shell PLC announced on the same day as the budget's tabling that it would be scrapping an 80,000-barrel-a-day oil sands project it had previously held up as key to the company's future in the province and would take a $2-billion hit.

Tuesday's budget did not include any additional increases to personal or corporate income taxes, but tobacco taxes rose by $5 per carton and liquor fees went up by 18 cents for a bottle of wine. Both taxes had already been increased in March in the final days of the Tory government. After the province's liquor surcharge stayed unchanged for 13 years, taxes on a 12-pack of beer will now be $1.14 higher than they were in February.

Ms. Notley's political opponents have questioned her government's plan to take on nearly $50-billion in debt by the end of the decade. Other critics have expressed concerns about her jobs program, warning that it will require a new government bureaucracy to administer and will pick economic winners and losers, something that has been called socialist and counter to the province's pragmatic political culture.

The $178-million program would allow companies of any size to apply for up to 100 grants in 2016 and 2017 when they hire new workers. The first-come-first-serve grants would cover 10 per cent of each new employee's salary up to $5,000.

"Businesses do not hire people because of a government program. They hire people because they need them. And the way you do that is you stimulate the economy through what we used to call the Alberta Advantage," Wildrose MLA Derek Fildebrandt said. "Not through a corporate-welfare scheme that is going to pay employers to hire people."

Even former Bank of Canada governor David Dodge, in Edmonton after he was hired by Ms. Notley to help craft her government's plan for infrastructure, highlighted problems with the proposed jobs plan. "It sounds great on paper and it is a great idea in theory," he said. "It is very hard to manage to be sure you are getting much incremental employment. In theory, in theory, it is the right thing to do. It is just very hard to do."

The provincial economy is expected to contract by 1 per cent this year and unemployment is forecast to grow to 6.2 per cent, up from 4.7 per cent in 2014.

Justin Smith, director of policy research and government relations with the Calgary Chamber of Commerce, said he expects the program to create no new jobs and called instead for an investment tax credit to help businesses invest in employees or equipment.

"We've reviewed the exhaustive economic literature on tools like these and what they do is, at best, shuffle jobs around in the economy and incent hiring that would have already taken place. We see it as a $178-million waste of taxpayer dollars that could have been put to more productive use," he said.

Alberta will run up $18-billion of operational deficits through to the 2019-20 fiscal year under the NDP's spending plan. According to Tuesday's budget documents, the government should return to balance in time for the next general election.

The NDP has kept its campaign promise of not cutting spending on health and education, however budget increases to both ministries will be kept below 3 per cent.

"For the first time in a generation, the people of Alberta will borrow to cover day-to-day expenses," Official Opposition Leader Brian Jean said. "With this budget, even the most optimistic Albertans have to be very, very concerned."

In a concession to jittery capital markets, the NDP has pledged to pass a fiscal-transparency act that would cap debt at 15 per cent of GDP. The Wildrose has said that the province could face a downgrade to its AAA credit rating if debt were to surpass that threshold.

This summer, Ms. Notley's government put an end to the so-called Alberta Advantage once championed by Mr. Klein, nixing the province's 10-per-cent flat tax on personal and corporate income taxes. She brought in five new tax rates for Albertans, raising the top bracket for those making over $300,000 by 50 per cent. While the Premier has ruled out a provincial sales tax and further income-tax hikes, some of her party's supporters have called for more revenue.

"Public education has been chronically underfunded, and if the government needs to raise additional revenue to fix that, then so be it," Alberta Teachers' Association president Mark Ramsankar said in a statement.

With reports from Jeffrey Jones, Carrie Tait and Jeff Lewis in Calgary