Alberta’s Economic and Fiscal Future 

Haizhen Mou | Johnson Shoyama Graduate School of Public Policy, University of Saskatchewan | haizhen.mou@usask.ca 

Jared Wesley | University of Alberta | jwesley@ualberta.ca 

January 20, 2021

Introduction 

Alberta’s economy was hit hard by a double blow from the pandemic and declining oil prices. The fiscal condition of the Alberta provincial government has deteriorated in recent years. The province’s net debt-to-GDP ratio has increased from a negative number in 2015-16 to 2.74% in 2016-17 and then to 7.93% in 2018-19.[1] Although Albertans’ living standard, as measured by real per capita GDP, remains one of the highest in the country, the confidence of Albertans in its economy has been shaken as some start to reckon with the province’s over-reliance on oil and gas revenue. The Viewpoint Alberta Survey, conducted amid the pandemic in August 2020, provides a valuable picture of what Albertans are thinking on the economic and fiscal future of the province. 

Alberta’s Fiscal Future 

The Parliamentary Budget Office’s most recent fiscal sustainability report projected that Alberta’s fiscal gap is about 2.1% of its GDP.[2] That is, if the province wants to return to its pre-pandemic net debt-to-GDP ratio, the province needs to reduce spending or increase revenue in an amount equivalent to 2.1% of its GDP. This amounts to a $7 billion adjustment. In this context, what do Albertan think that the provincial government should do to put the province on a stronger economic and fiscal footing? 

As part of the Viewpoint Alberta survey, we gauged respondents’ level of agreement with a host of fiscal measures that could help reduce the provincial deficit. Their reactions are displayed in Figure 1. 

[1] Government of Canada (October 2019). Fiscal Reference Tables 2019. https://www.canada.ca/en/department-finance/services/publications/fiscal-reference-tables/2019/part-5.html#tbl32  

[2] Office of the Parliamentary Budget Officer (PBO, November 6, 2020). Fiscal sustainability report 2020: Update. https://www.pbo-dpb.gc.ca/web/default/files/Documents/Reports/RP-2021-033-S/RP-2021-033-S_en.pdf  

There appears to be widespread support among Albertans in favour of tax increases on the wealthy and corporations, and securing more fiscal support from Ottawa. Among about 810 respondents, almost 80% strongly agreed or agreed that the Alberta government should demand more transfer funds from the federal government. These could come by way of increases to health and social transfers, or a boost to fiscal stabilization payments. About 70% of the respondents strongly agreed or agreed that the provincial government should raise income tax on the wealthiest individuals. Somewhat surprisingly, almost two-thirds (63%) of UCP supporters and rural Albertans (66%) agreed or strongly agreed with raising taxes on the rich. More than 60% of the respondents wanted the government to consider raising corporate income taxes. New Democrats (85%), women (70 %), and millennials (70 %) were most supportive of the measure, while just over half of UCP supporters (52%) supported raising corporate taxes. 

On the other hand, fewer than 35% of respondents strongly agreed or agreed that the provincial government should establish a Provincial Sales Tax (PST). A majority of New Democrats (54%) were supportive of creating a PST, while over half of rural residents strongly disagreed (52%). 

Just over 20% of respondents believed that income taxes should be raised on all Albertans. On the expenditure side, fewer than half of respondents wanted the government to reduce spending on government programs and services, and fewer than 40% wanted these programs and services to be privatized. Majorities of UCP supporters (63%), men (50%), and non-whites (50%) supported spending cuts, while over half of UCP supporters (51%) supported greater privatization. 

Although more than 70% of the respondents wanted the government to wait until after the pandemic to make any major decisions on fiscal policy, one message from the survey is clear. Albertans have little appetite for across-the-board revenue generating measures, or major changes to government spending. 

Alberta’s Economic Future 

Solving the fiscal problems in a province requires its economy to recover and grow. In November 2020, the Parliamentary Budget Office estimated that, partly due to the positive demographic trends in Alberta, the province will ultimately emerge from the current recession and remain one of the wealthiest provinces in the country. However, Albertans’ feeling about their economic future is not as optimistic as the PBO (see Figure 2).  

It is not surprising that, given the declining economic performance and diminishing economic prospects of Alberta, more respondents feel frightened, pessimistic or angry than cheerful about the province’s economic future. Majorities of women, whites, suburbanites, and Albertans aged 35 to 54 felt frightened. Over half of all New Democrats and suburbanites felt pessimistic. Yet, the fact that almost half of the respondents feel frightened or pessimistic about the economic future of the province speaks to the breadth of this discontent. The depth is also remarkable. When asked directly, over half (51%) of respondents felt that the province’s “best days are behind it.” 

The pessimism sends a chilling message to the policy makers. How should they boost Albertans’ confidence in the economy by stimulating the province’s economic growth? Figure 3 illustrates Albertans’ own opinions on the matter. 

Among the various economic growth policies, policies that help diversify the economy received the most support. Almost 80% of the respondents strongly agreed or agreed with providing “subsidies to companies that will help diversify the economy.” More than 70% wanted to boost infrastructure spending and more than 60% supported an increase on childcare spending. While New Democrats (74%) were more likely than UCP supporters (49%) to back a boost to childcare spending, it is noteworthy that there was no gender gap on the question. Some respondents think lower taxes can help stimulate the economy – about 60% agreed that income tax should be lowered, while about 30% agreed that corporate income tax could be reduced. UCP supporters and non-whites were most supportive of these tax relief measures. 

The most divided opinions surround the treatment of oil and gas companies. About 42% of the respondents support providing subsidies to oil and gas companies, while 58% oppose such subsidies. Interestingly, women (46 %) were more likely than men (40 %) to agree or strongly agree with these subsidies, as were non-whites (53%) compared to whites (38%), people under 55 years-old (46%) versus people over 55 (34%), and urbanites (45%) compared with rural-dwellers (41%). More predictably, UCP supporters (54%) were more likely than New Democrats (24%) to support subsidizing oil and gas companies.

This sharp division reflects a difficult policy choice in Alberta. Although the majority of respondents want to diversify the economy and do not think more subsidies to oil and gas companies will help stimulate the economy, for many reasons a substantial portion of Albertans want the provincial government to continue supporting oil and gas companies.

The division on the subsidy to the oil and gas companies is just one of the multiple policy dilemmas faced by Albertans. Albertans do not want to see a reduction in spending on programs and services or privatization of programs and services. Albertans also want the government to increase investment in physical infrastructure and social infrastructure such as daycare. However, Albertans oppose increasing income tax or establishing a Provincial Sales Tax. Most Albertans hope the federal government will provide more funds to close the fiscal gap. If the federal government does not enrich the Fiscal Stabilization Program, Canada Health Transfer, Canada Social Transfer, infrastructure spending, or other federal funding programs to Alberta’s advantage, the Alberta government has to either reduce spending or increase taxes to close the fiscal gap. 

Conclusion

Alberta is at a crossroads. Its current fiscal and economic situation is far from being desperate compared with provinces such as Newfoundland and Labrador. However, it is difficult for a province that enjoyed decades of economic prosperity to adjust to a declining reality. In previous Viewpoint Surveys and Common Ground focus groups, we found that an increasing number of Albertans feel like they are “falling behind” – behind previous generations, behind their former selves, and behind other jurisdictions. That these perceptions aren’t shared by other Canadians matters little to policymakers in Alberta. Combined with an unwillingness among most Albertans to accept broad-based tax increases or spending cuts, these circumstances make it challenging for the Alberta government to design effective policies to steer the economy toward diversification and reduce its deficits, while still considering the preferences of Albertans. This survey provides a good context for the Government of Alberta’s next provincial budget, due at the end of February 2021. 

Methodology of the Viewpoint Alberta Survey

The Viewpoint Alberta Survey was conducted between August 17 and 30, 2020. The survey was deployed online by the Social Sciences Research Laboratories (SSRL). A copy of the survey questions can be found here: https://bit.ly/35rtU9F. SSRL co-ordinates the survey with an online panel system that targets registered panelists that meet the demographic criteria for the survey. Survey data is based on 825 responses with a 17-minute average completion time. The Viewpoint Alberta Survey was led by co-principal investigators Loleen Berdahl, Elaine Hyshka, and Jared Wesley. It was funded in part by an Alberta-Saskatchewan Research Collaboration Grant from the Kule Institute for Advanced Study at the University of Alberta and the College of Arts and Science at the University of Saskatchewan.