Braid: New talk of deficits gives UCP wiggle room on promise to lower income tax

Premier Danielle Smith and her fiscally conservative ministers are raising the spectre of budget deficits — a rationale to go slow on a major tax promise.

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There’s a slim chance Albertans will get the full income tax break the UCP promised in the May election campaign.

Very slim, and not very soon.

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With no election to worry about for three years, Premier Danielle Smith and her fiscally conservative ministers are reverting to form.

They’re raising the spectre of budget deficits. That’s the rationale to go slow on a major tax promise.

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The income tax cut was a powerful pledge when Smith unveiled it on the second day of the May election campaign. The details are still proudly displayed on the party website.

“A re-elected UCP government will create a new eight per cent bracket on income under $60,000.

“This means every Albertan earning $60,000 or more will save $760 — that’s over $1,500 per family.

“Albertans earning less than $60,000 will see a full 20 per cent reduction to their provincial tax bill under this tax cut.”

Smith herself said that day: “This tax cut will result in real and significant savings that can be put toward housing, life’s other necessities, planning for the future or whatever else is a priority for Albertans.

“After all, it’s your money. You earned it, not the government.”

That promise probably did more than any other to defeat the NDP.

Nothing was said about phasing in the program. Most people surely assumed the full tax break would apply for the 2023 tax year.

In an interview Tuesday, Finance Minister Nate Horner said it’s “definitely possible” that next spring’s budget will cover the entire promise.

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But the premier herself, in an interview a couple of hours later, said: “We will absolutely implement the income tax cut before the next election.

“And we’ll do it in a phased way that my finance minister feels comfortable with, that we’ll be able to afford.

“I think people expect that. They want to make sure that we’re not going to be running deficits.”

Horner said: “All I would say is she’s given me the flexibility to ensure that we do not move directly into a deficit position.”

Alberta Finance Minister Nate Horner
President of Treasury Board and Minister of Finance Nate Horner provides an update on Alberta’s finances and economy during a press conference at the Alberta Legislature, in Edmonton Thursday Nov. 30, 2023. David Bloom/Postmedia file

There was no mention of deficits on the horizon as recently as Nov. 30, when a government report showed a $5.5-billion surplus for this fiscal year, 2023-24.

The report also predicted comfortable surpluses of $2.1 billion in 2024-25 and $2.8 billion in 2025-26.

Three weeks after those official forecasts were made public, we suddenly hear about deficits.

That creates the argument for going slow on the income tax relief. It’s also why they will not extend the fuel tax holiday into 2024. Albertans will pay nine cents more per litre starting Jan. 1.

The fuel-tax reboot is not a broken promise; they never said it would continue. But the income tax shift goes against what people were led to expect from the UCP’s biggest election announcement.

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That said, the government does face real fiscal pressures, partly from reindexing social programs and income tax brackets.

Horner is especially worried about $26 billion in government debt rolling over in the next two years at much higher interest rates. That could cost more than $1 billion in extra interest payments.

“There’s never been this much debt, maturing all at once, at basically a doubling of the rate,” Horner said.

Smith said, noting that oil price forecasts are weakening: “It makes me very uneasy to know that with these fluctuating prices, we could be in deficit very quickly.”

She recalls that oil and gas revenues fell to only $2 billion a few years ago. Now, she says, “we’re anticipating nearly $20 billion in resource revenue this year.

“We need $14 billion of that for operating expenses. Is that sustainable?”

Maybe it isn’t. Neither, it seems, is the UCP’s signpost election promise.

Don Braid’s column appears regularly in the Herald

X: @DonBraid

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