Budget 2015 sets a balanced direction for Alberta’s future

Guided by 10 Fiscal Principles and a matching 10-year vision, Budget 2015 includes five year fiscal and capital plans showing Albertans the long-term approach government is taking. Budget 2015 balances spending restraint with revenue enhancements and will use savings in the Contingency Account to address the province’s fiscal challenge.

Alberta spent $1,300 more per capita than the national average on programs and services in 2013-14. Changes to government spending outlined in the budget will narrow this over three to four years while protecting core services and ensuring access for those who need care and for students.

Funding for primary education and vulnerable Albertans will be increased while internal adjustments will keep overall expense lower than the 2014-15 forecast. Working families will benefit from an enhancement to the existing Alberta Family Employment Tax Credit and the introduction of the Alberta Working Family Supplement for lower income families.

“We have told Albertans that tough decisions would be needed and Budget 2015 reflects a balanced approach that will see us return to surpluses within three years. The budget is the first step in a long-term strategy. This is the kind of planning and stability Albertans want for the long-term with immediate action to get us on the right path immediately."

“Budget 2015 supports Alberta’s growing population with investments where they’re needed, tax relief for low-income families and restraint measures that will help drive system improvements. By containing costs for the next three years in combination with revenue increases and using savings in the Contingency Account, we are setting in motion a plan that will put us on a solid fiscal foundation for years to come.”

With Budget 2015 Alberta moves to a budget presentation that is in line with the audited year-end consolidated financial statements and is supported by the Auditor General. On this basis, which includes the SUCH (Schools, Universities, Colleges and Hospitals) sector and annual changes to pension provisions, total expenses will be $48.4 billion, $323 million less than last year. Government will absorb forecasted operating growth pressures of $1.9 billion in 2015-16 and spending will remain relatively flat for the following two years. This restraint brings Alberta’s spending closer to the national average.

Alberta’s revenue is forecast to be $43.4 billion down $5.6 billion from the 2014-15 forecast of $49 billion. Resource revenue is forecast to be $2.9 billion; $5.9 billion lower than 2014-15. This is the lowest amount of resource revenue since 1998-99. Revenue initiatives in Budget 2015 are expected to generate $1.5 billion in 2015-16 and approximately $2.7 billion by 2019-20.

Responsible spending

In the departments that represent the bulk of government spending:

• Alberta Health’s 2015-16 consolidated expenses are budgeted at $18.9 billion, a 0.8 per cent reduction from 2014-15 forecasts, equal to $159 million. The ministry will also absorb about $950 million in growth pressures through significant spending restraint measures from Alberta Health Services, as well as lower payments to primary care networks and drug cost savings.

• Alberta Education’s consolidated expenses are budgeted at $7.5 billion, a two per cent increase from 2014-15 forecasts equal to $145 million. Government will fund the final year of the Teachers’ Framework Agreement which will increase teachers’ compensation by $89 million to more than $4 billion. Growth pressures of $200 million will be absorbed partly through a reduction of three per cent (about $78 million) across the ministry and in school boards’ administration costs.

• Innovation and Advanced Education’s consolidated expenses are budgeted at $5.8 billion, a one per cent reduction from 2014-15 forecasts, equal to $55 million. This spending includes $5.2 billion budgeted for post-secondary operations and $227 million for student aid, a $14 million increase.

• Human Services will maintain among the most generous supports in Canada for Persons with Developmental Disabilities and clients receiving payments under the Assured Income for the Severely Handicapped program. Human Services’ consolidated budget will increase by $72 million to $4.2 billion, a 1.8 per cent increase from 2014-15 forecasts. Ministry-wide realignments and reductions will partially offset growth pressures of $200 million in 2015-16.

• Capital spending of $29.5 billion over five years will be predictable, sustainable and directed to priority commitments such as new schools, roads and bridges. The five-year plan includes $4.8 billion in capital maintenance—almost tripling government’s current annual budget for maintenance and renewal by 2019-20.

Revenue changes

Alberta will maintain its standing as the lowest tax jurisdiction in Canada.

Government will support and protect working and lower income families by enhancing the Alberta Family Employment Tax Credit. The refundable tax credits will be phased-in at a higher rate and will phase out at higher income level, allowing families to earn more before the credits are reduced. It’s estimated these changes will provide $25 million in further tax relief for lower-income working families. The change takes effect July 1, 2016.

Recognizing that more can be done to help working families, government will introduce a new refundable tax credit—the Alberta Working Family Supplement. This new credit will benefit working families earning between $2,760 and $41,220 annually. Families with one child may receive a maximum annual benefit of $1,100 depending on income. Additional annual benefits will be provided for each of the next three children in a family. The maximum benefit for any family will be $2,750 in tax credits. This will benefit approximately 75,000 families and provide $85 million in new benefits. The new tax credit takes effect July 1, 2016.

Budget 2015 will create more long-term revenue stability by beginning the process of lessening Alberta’s reliance on volatile oil prices. Alberta will add two new tax brackets for individuals with taxable income of more than $100,000 and $250,000. In 2016, an individual making taxable income over the $100,000 mark will see an increase of 0.5 percentage points to 10.5 per cent, with a further increase of 0.5 percentage points on taxable income over the $250,000 mark. Over three years, personal income taxes in these ranges will increase by 1.5 percentage points in total, half a per cent each year. After three years, the higher rate that applies to the $250,000 range will be reduced to the same 11.5 per cent rate applied to $100,000 plus level. This tax change will impact roughly 330,000 Albertans. The new rates will be effective January 1, 2016 and will generate approximately $330 million in additional revenue for the 2016-17 fiscal year rising to $730 million by the 2018-19 fiscal year.

In recognition of the cost of health care delivery, Alberta will introduce the Health Care Contribution Levy effective July 1, 2015 that will apply to individuals with taxable income of more than $50,000. The levy will phase-in depending on a person’s income and will be capped at a maximum of $1,000 in 2016 for Albertans with taxable incomes of more than $130,800. This levy will apply to roughly 1.1 million Albertans and generate $396 million in 2015-16, rising to $530 million in new revenue when fully implemented in the 2016-17 fiscal year.

Additionally, Alberta’s fuel tax will increase for the first time since 1991, rising four cents to 13 cents per litre. Tobacco taxes will increase to $45 per carton from $40 per carton, the first change in six years. Alberta’s liquor mark-ups will also increase; it will be the first revenue increase in 13 years and will generate an additional $75 million. These changes will all be effective at 12:01 a.m. on March 27, 2015. Together these increases will generate roughly $695 million in additional revenue. A variety of user fees will also increase, reflecting a user-pay model for certain services. A full list is available online.

Savings

Government will use its savings from the Contingency Account to balance off the forecasted deficit of $5 billion. The Contingency Account will be drawn down to $2.5 billion from its current balance of $6.5 billion.

With a return to surplus budgets in 2017-18, the Contingency Account will be replenished to $5 billion by 2019-20. When the Contingency Account reaches $5 billion, savings will be added to the Heritage Savings Trust Fund. This is forecasted to add $18 billion to the Heritage Fund in 10 years.

Energy and Economic Budget 2015 Forecasts

Category	2014 forecast	2015	2016
Crude oil ($US WTI)	$80/barrel	$55/barrel	$63/barrel
Crude oil ($CAN WCS)	$70/barrel	$46/barrel	$51/barrel
Canadian dollar (US cents/CDN$)	88 cents	81 cents	83 cents
Natural gas	CAN$3.53/GJ	CAN$2.94/GJ	CAN$3.17/GJ
Real GDP growth	3.8 per cent	0.4 per cent	1.7 per cent
Unemployment rate	4.7 per cent	5.7 per cent	5.9 per cent
Population	4.12 million 2.9 per cent growth	4.21 million 2.0 per cent growth	4.28 million 1.7 per cent growth

Five year forecast details (billions)

Category	Budget 2015 estimate	2016-17 target	2017-18 target	2018-19 target	2019-20 target
Revenue	$43.3	$45.8	$49.8	$52.3	$54.4
Expense	$48.3	$48.8	$49.1	$50.6	$51.9
Surplus/(deficit)	($5.0)	($3.0)	$0.7	$1.7	$2.4
Capital plan	$6.4	$6.2	$6.0	$5.6	$5.2
Contingency Account balance	$2.5	$1.0	$2.9	$4.6	$5.0

Revenue change details

The following is a detailed listing of all revenue and taxation changes in Budget 2015.

Health Care Contribution Levy

• Albertans with taxable income over $50,000 will begin to pay the new Health Care Contribution Levy (HCCL) on July 1, 2015. Individuals with taxable income below $50,000 a year will not be subject to the HCCL.
• The new levy is capped at $1,000 annually, which is reached at $130,800 in taxable income.
• It is estimated that the HCCL will impact about 1.1 million Albertans.
• The new Health Care Contribution Levy is expected to raise $396 million in 2015-16. This amount will rise to about $530 million in 2016-17, the first full fiscal year for which the change will be effective.

Health Care Contribution Levy chart – Fiscal Plan page 87

Personal Income Tax

• Budget 2015 introduces two new tax brackets starting January 1, 2016.
• Taxable income over $100,000 will be subject to a provincial income tax rate of 11.5 per cent once fully implemented over three years. It is expected that this change will impact about 330,000 Albertans, representing 11 per cent of provincial tax filers.
• Taxable income over $250,000 will be subject to a tax rate of 12 per cent once fully implemented. This rate will be reduced to 11.5 per cent after three years to match that of earners over $100,000.
• The additional 0.5 per cent rate is intended to raise additional revenue until the budget is balanced and is estimated to impact about 44,000 of Alberta’s highest income earners, about 1.5 per cent of tax filers.
• Taxable income below $100,000 will continue to be taxed at 10 per cent, as has been the case since 2001. The last time that personal income taxes increased in Alberta was in 1987.
• These new tax brackets are expected to generate an additional $330 million in 2016-17, rising to about $730 million in 2018-19.

Changes to Alberta’s Personal Income Tax Structure – Fiscal Plan page 88

Alberta Family Employment Tax Credit

• Alberta’s tax system provides direct financial support to about 137,000 lower and middle income families through the Alberta Family Employment Tax Credit (AFETC).
• The program is structured as a refundable tax credit, so families benefit from the program regardless of whether they pay any provincial income tax.
• Starting July 1, 2016, the AFETC will be enhanced further. The rate at which benefits are phased in will be increased from eight per cent to 11 per cent on working incomes over $2,760. The phase-out threshold will be increased from $36,778 to $41,250, allowing families to earn more before these benefits begin to phase out.
• The enhancements take effect on July 1, 2016, and it is estimated they will provide about $25 million in additional support for lower and middle income families.

New Alberta Working Family Supplement

• To further support Alberta’s working families, Budget 2015 introduces a new refundable tax credit – the Alberta Working Family Supplement (AWFS). Starting July 1, 2016, this new program will apply to working families earning between $2,760 and $41,220.
• Like the AFETC, the new AWFS will be indexed to inflation each year (starting in 2017) and administered on Alberta’s behalf by the Canada Revenue Agency. Families currently eligible for the AFETC will automatically be enrolled in the new AWFS.
• In total, it is estimated that the AWFS will provide an additional $85 million of support to approximately 75,000 working families. This program, as well as the enhancement of the AFETC, supports the forthcoming Alberta Poverty Reduction Action Plan.

AFETC and AWFS Program Parameters – Fiscal Plan page 89

Fuel Tax

• The fuel tax applicable to gasoline and diesel will be raised by four cents, to 13 cents per litre.
• The last time tax on gasoline and diesel increased in Alberta was in 1991.
• The Tax Exempt Fuel User and Alberta Farm Fuel Benefit programs provide tax exemptions for fuel used for qualifying purposes. Eligible users will continue to receive the same benefit of nine cents per litre on the purchase of marked fuel, but the government is not increasing the benefits provided under these programs.
• These tax rate changes are expected to raise an additional $530 million in 2015-16 and are effective at 12:01 a.m. on Friday, March 27.

Tobacco Tax

• The tax per carton of 200 cigarettes will increase by $5 to $45 and the tax on loose tobacco will rise by 3.75 cents per gram to 33.75 cents per gram. These changes maintain Alberta’s policy of taxing cigarettes and loose tobacco at parity.
• The last time that tobacco tax in Alberta increased was in 2009.
• The levy on cigars will also be increased. The tax rate applied to a cigar’s taxable price will rise from 103 per cent to 116 per cent. The minimum and maximum tax per cigar will also rise from 20 cents to 22.5 cents, and from $6.27 to $7.05, respectively.
• These increases, which align with Creating Tobacco-free Futures: Alberta’s Strategy to Prevent and Reduce Tobacco Use, are estimated to generate an additional $90 million annually.

Charitable Donations Tax Credit

• The Alberta government supports contributions to registered charities by providing a Charitable Donations Tax Credit (CDTC).
• In 2007, the CDTC was enhanced to 21 per cent from 12.75 per cent on total donations over $200 to encourage higher donation levels. The enhancement was not as effective as anticipated.
• Given the ineffectiveness of the credit enhancements and the current fiscal environment, the CDTC rate applied to total donations over $200 will be returned to 12.75 per cent for 2016 – the rate in effect prior to 2007.
• Returning the charitable credit to 12.75 per cent for the 2016 tax year is estimated to save the government $90 million annually.

Insurance Premiums Tax

• The Insurance Premiums Tax is imposed on premiums receivable by an insurer. This tax has remained unchanged for more than 25 years.
• On April 1, 2016, these tax rates will increase by one percentage point to three per cent on premiums for life, accident and sickness insurance, and four per cent for other insurance.
• This measure will generate an additional $165 million in 2016-17.

Education Property Tax

• Beginning in 2016-17, the Education Property Tax requisition will be determined on an annual basis, as was done prior to 2013-14.
• Since the government assumed responsibility for education property tax in 1994, the province’s share of total property tax revenue collected in Alberta has fallen from 51 per cent to 26 per cent.
• For more information on this change to Education Property Tax, please visit Alberta Municipal Affairs

 

After accounting for all of the tax changes that take effect in 2015-16, it is estimated that Albertans and Alberta businesses will still pay at least $10.9 billion less in taxes than if Alberta employed the tax system of any other province. When all changes announced in the budget are fully implemented, Alberta will maintain a tax advantage of at least $9.4 billion.