New fiscal rules for Alberta require balanced budgets, introduce surplus spending 'guardrails'

As Alberta tabled its next provincial budget Tuesday, the finance minister unveiled new fiscal rules mandating balanced budgets and how a government can spend surplus dollars.

Finance Minister Travis Toews says since the provincial economy relies on resource revenues, fiscal rules help combat price volatility and give Albertans assurances the government will spend responsibly by introducing new "guardrails."

"It brings stability," Toews said. "If you have unallocated surplus hanging around, it's pretty easy to spend it irresponsibly."

With some caveats, the province will be required to present balanced budgets and limit year-over-year operating expense growth. For the next three years, a $1.5 billion contingency fund has been allocated in case of emergencies or natural disasters.

The balanced budget requirement can be broken only if:

• an unexpected disaster occurs;
• revenue declines by $1 billion or more from the prior-year third-quarter revenue forecast; or
• or if revenue is expected to decline below the prior-year third-quarter expense forecast.

Upcoming legislation to be tabled in the upcoming spring session and the budget will establish the new fiscal framework rules to "secure Alberta's future." Once passed, the framework would come into effect as of April 1.

Under the new rules, if passed, at least 50 per cent of surplus cash would have to go toward paying debt.

The remaining money would go to a new "Alberta Fund," which would allow:

• further debt repayments;
• additional Heritage Fund deposits; or
• any one-time discretionary initiatives that do not create future provincial spending increases.

For 2023-24, that means roughly $1.2 billion will be available for the province to allocate as part of the Alberta Fund.

There are no consequences to the province breaking the rules other than violating their own legislation.

When asked about that by reporters, Toews joked it would be 100 days of jail time.

"Just kidding," he added with a smile.

"For a government to contravene its own legislation, regardless of which government, legislation that was passed in the house would be far more than embarrassing, it would be a public spectacle," Toews said.

"There would be a huge political cost to bear."

Another question posed to Toews was if the Alberta Fund, or surplus money, could be used as a slush fund for government initiatives.

"The purpose of the Alberta fund is to bring discipline to the use of the surplus," he said.

He says too often in Alberta's history, when a surplus is announced, the province has pushed funding to hire new staff or build infrastructure that ends up increasing base operating costs in future years.

"I really believe it is critically important that Albertans get full value and have their surpluses managed in a publicly beneficial way," he added. "It's to be more transparent."

When asked if the Alberta Fund was a pre-election slush fund, Toews said it was "anything but."

"The layering of protection, I believe, will ensure governments cannot act irresponsibly," he said.

Part of the reason the province introduced the new fiscal rules is to ensure the debt load decreases, freeing up money for future generations to spend on needed services, Toews said.

As of March 31, 2022, the province held $117.7 billion in total debt outstanding.

According to Budget 2023, taxpayer-supported outstanding debt is estimated to total $79.7 billion at the end of the 2022-23 fiscal year. Next year, the province projects it will be $78.3 billion.

Those estimates are $15 and $17.3 billion lower, respectively, than what was estimated in last year's budget. Debt-servicing costs are forecast to suck $2.7 billion for the last fiscal year out of the provincial coffers and another $2.8 billion this year.

"Paying down debt creates fiscal room, and when you have fiscal room, you can more effectively deal with an economic shock that might be coming in the future," he added. 

'PLAYED FAST AND LOOSE WITH BILLIONS'

Rachel Notley, Opposition leader, said she is not reading too much into the proposed legislation mandating balanced budgets since the province can simply rewrite the rules.

"I think they are going to have some trouble meeting that legislation," Notley said, adding that oil projections the government is using are "overestimated."

While any initiatives receiving money through the Alberta Fund have to be approved by the legislature, Notley said that doesn't provide comfort to her as the government has relied on "vague discretionary funds" since being elected in 2019.

She pointed to how the Office of the Auditor General found that the province failed to account for $4 billion in COVID-19 funding properly.

"They have played fast and loose with billions of dollars every year," Notley said. "This government has been unprecedented in its use of contingency funds."

"To see that at the same time that we have parents talking about the fact that their kids are in classrooms with 35 to 40 other kids," she added, "those families, they deserve to know why that money is not going to their children."

'ON A KNIFE'S EDGE'

For economist Trevor Tombe, the province will be testing the balanced budget mandate with oil prices dropping and international volatility.

"Every $1 per barrel change in oil is $630 million to the government's bottom line," Tombe told CTV News Edmonton. "So this surplus is equivalent to an oil price move of $4 right now.

"So we're on a knife's edge in terms of surplus position," he added.

He sees the budget as focused more on the next 90 days rather than the longer-term fiscal future of the province.

"With interest rates spiking, paying down debt kind of makes sense," Tombe said. "What we're seeing though, in this budget, is kind of an outlook for several years of really significant increases in spending.

"So the windfalls now kind of shifted away from debt repayment and definitely towards increasing government operations."