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How do you solve a problem like Alberta?
It’s a question Finance Minister Bill Morneau is no doubt wrestling with as he prepares to table the Liberal government’s first budget on Tuesday.
We know a key pillar of the fiscal plan, along with tax breaks and benefits for the middle class, is infrastructure stimulus
Economists are confident the deficit will clock in around $30 billion, with roughly $10 billion dedicated to putting shovels in the ground.
What’s not so clear is how those infrastructure dollars will be doled out.
With Alberta’s economy the most challenged in the country, what will Mr. Morneau do to lend a hand?
Alberta is the only province forecast to remain in recession this year, according to the Conference Board of Canada, as the oil slump continues to take its toll on private-sector investments and jobs.
The solution seems simple: send a good portion of that stimulus to the hard-hit province.
The problem is, Alberta appears to be well ahead of the rest of the country when it comes to the quality of its infrastructure.
“It’s not entirely clear Alberta needs huge amounts of new infrastructure spending,” said Jack Mintz, president’s fellow of the School of Public Policy at the University of Calgary, in an interview with BNN.
Alberta’s per capita spending on such projects has been higher than any other province, according to Mintz.
“I think right now for Alberta, they have to be careful not to overspend on infrastructure.”
Finn Poschmann, president and CEO of the Atlantic Provinces Economic Council, agrees, calling Alberta’s infrastructure “sound.”
“What they do have is very high spending on public services and they’ve just taken a big hit to revenue. This is not an easy thing for federal policy to address.”
One key area where Ottawa can lend a hand is expanded Employment Insurance benefits for workers displaced by the energy slump, according to Craig Alexander, vice-president of economic analysis at the C.D. Howe Institute.
Such changes, which would affect workers across the country, would be “desirable” even without the slump in energy, Alexander told BNN in an interview.
“The rules that we had, that basically made eligibility criteria affected by regional considerations, were inappropriate,” he added.
Current eligibility for EI is based on regional unemployment rates when you lose your job. That means a worker in Alberta needs in the neighbourhood of 600 hours of work to qualify for benefits, while in most of the Atlantic provinces it’s 420 hours.
RBC Economics expects EI changes will include a reduction in the wait time to one week. RBC also notes the Liberal Party election platform was grounded in infrastructure investments of $125 billion over 10 years.
The thing about infrastructure spending is you often get the best bang for your buck in depressed economies.
“There’s a lot of evidence that helping Alberta out as their economy contracts rapidly would be a very good thing,” Philip Cross, senior fellow at the Macdonald-Laurier Institute, told BNN.
“Deficit spending in those parts of the country that aren’t in recession - Ontario, Quebec and B.C. - is probably a waste of time.”
And stimulus doesn’t all have to come from the public purse. The most important thing Ottawa can do for Alberta is “build out our pipeline infrastructure,” Cross added.
“We have private companies lined up left and right waiting to do this, just waiting for the OK from government bodies.”
While Alberta remains mired in recession, the Bank of Canada is forecasting national GDP growth of 1.4 per cent this year – and that’s before fiscal stimulus is factored in.
The Conference Board sees B.C., Ontario, Manitoba and Nova Scotia’s economies growing more than 2 per cent this year.
That has some observers questioning the need for a large stimulus jolt.
“I am very concerned about the $30-billion deficit because it’s growing, in my view, really for no reason at all,” said Mintz.
“It doesn’t need to be that large given the state of the Canadian economy today.”
CIBC deputy chief economist Benjamin Tal doesn’t see it that way, saying his shop would like to see a deficit in the neighbourhood of $40 billion.
“This economy needs stimulus because monetary policy cannot help, we do need the government to help here,” Tal told BNN in an interview.
“That’s why god created budget deficits.”
On the Alberta question, Tal acknowledges the province needs the “money now.”
“At the same time, Alberta needs to change,” he said.
“So you don’t want to help Alberta too much and prevent them from changing.”
Other initiatives expected in the March 22 budget (Source: RBC Economics)
What Bay Street would like to see in the budget:
Greg Taylor, Vice President and Portfolio Manager, Aurion Capital Management
“The issue is how we are going to spend the deficit to get the economy going…. Fast tracking an LNG project is one of the best. We need natural gas drilling to come back to Alberta, and to do that you need an LNG project.”
John Johnston, Chief Strategist, Davis Rea
“[The Liberal government] runs a greater risk of losing some credibility on Bay Street than on Main Street. This budget will cater to Main Street, but people are aware of that.”
Joey Mack, Director of Fixed Income, GMP Securities
“As long as they project some sort of target for balance in four to five years, [Canada’s AAA credit rating] should be safe. Rating Agencies will lean toward the longer-term.”