calgary chamber of commerce - premier prentice - november 28, 2014

8/10/2019 Calgary Chamber of Commerce - Premier Prentice - November 28, 2014

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SPEAKING NOTESHONOURABLE JIM PRENTICE

PREMIER OF ALBERTA

CALGARY CHAMBER OF COMMERCE LUNCHEON

NOVEMBER 28, 2014

BMO CENTRE1410 OLYMPIC WAY SECALGARY, ALBERTA

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Thanks and good afternoon everyone. I appreciate the opportunity to speak to

you today. And I want to thank the Calgary Chamber of Commerce for hosting

this event.

This is my first time speaking to the Calgary Chamber of Commerce since May

before I was elected Premier. You could say a few things have happened since

then. Perhaps most notably and most exciting for our provinceis seeing the

Albertas Calgary Stampeders bound for the Grey Cup this Sunday!

When I spoke to the Chamber in May, I shared with you some of my priorities

things I believed should be at the top of the agenda for the Government of

Alberta.

A commitment to fiscal prudence topped that list. Todayas Premier of

Albertait remains atthe top of my list, just as I know it remains top of the list for

Albertans.

In the last six months, I have had the opportunity to talk with thousands of

Albertans, including many from our business community.

And it doesnt matter if Ive been at a cattle barn, or a business luncheon or

visiting with young families in my constituency.


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I have heard consistently and clearly that the Alberta Government must lead with

solid conservative and fiscally prudent values. Albertans expect their

government to take a responsible and accountable approach to how it uses their

hard-earned tax dollars.

And they expect this for a reason, because in a Province that had led the country

in growth for more than ten years nowwe know that we cannot afford to lose

pace in providing the essential structures and services that our young and

growing province needs.

Albertans want schools for their children, service and support for aging parents

and quality health care for allall within vibrant communities.

They want to see us plan for emergencies and save for future generations. They

expect services for our children and our seniors. They expect our leading

resource economy to be an environmental leader too.

These are the front lines, the bread and butter of governing, where Albertans

expect to see results. These are an essential foundation supporting the quality of

life that attracts and keeps us herethey are essential to Alberta.

They reflect a history of accomplishment and ambition that Albertans have

transformed into action. By building a province that is second to none. For more

than 100 years, we have taken advantage of the natural resources that dot our


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landscapes and rest beneath our soil, to create economic opportunity and

prosperity. But good fortune has never been enough.

The Alberta we live in and enjoy today is the result of our ingenuity and work

ethic; our openness to trade and our embrace of sound economic policy; our

tolerance and diversity. It is for these things that Alberta is truly world-renowned.

They are the traits that attract newcomers, drive investment, and elevate our

quality of life in every corner of the province. They keep Alberta growing.

Our challenge is to ensure that as we grow, we preserve what we have built, and

create a brighter future for those who will come after.

Today I want to outline three pillars of our overall economic and fiscal strategy

for Alberta. These are the priorities of government when it comes to ensuring

that Alberta continues to enjoy the quality of life and economic security that

Albertans expect.

They include:

A commitment to strong, conservative fiscal disciplineeven and

especially as global economic circumstances impact our bottom line.


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A stable and consistent level of investment to manage growth and

finally.,

A concerted, strategic plan to maximize the value of our natural resources

the cornerstone of the strongest and best-performing economy in

Canada.

I want to be clear about one thing. The economic viability and sustainability of

our energy industry is not in question. This is a price trough. It is a price trough

of uncertain duration. But, it is a price trough brought on by a conscious decision

by OPEC and its members to overproduceto impose market share discipline on

themselves and arguably on other higher cost producers.

Alberta will weather this period of low prices because we are innovation, because

the investments we are making in our energy sector are long-term investments,

and because we are tough and resilient. There will be consequences, for sure.

But we will weather this. We are a strong, stable and innovative provincewith a

free market energy industry, strong investment climate and prudent public

finances. I intent to keep it that way.

FISCAL DISCIPLINE


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This week Albertas economic watchers have focused on two very important

economic events. The first was the release of the second quarter update two

days ago. The second was the OPEC meeting in Vienna.

As an energy driven province, we have more than a nodding acquaintance with

volatile energy pricesand we now know that OPEC members will add little

certainty to our forecasting in the near term. The need for Alberta to ensure its

own resilience to global energy impacts has never been more obvious.

The time to adapt our government structures to resist these levels of volatility is

clearly right now. The change in our bottom line due to $75 dollar oilyesterday

it was $69 dollar oil - has been swift and the Government has moved quickly to

adapt our forecasts to reflect the changes.

For the remainder of this year, we are basing our forecasts in the $65 to $75 dollar

range. And the implications of this are important. Oil prices of $75 per barrel

represent a very significant reduction in terms of government revenue, especially

if the price remains this low for the entire year. Last year, the Alberta government

earned more than $9 billion from royaltiesamounting to about 21 per cent of

our budget.

With every one dollar drop in the price per barrel over a year, Alberta loses over

$215 million in revenues. Now imagine a $20 dropeven a $10 dropand the

fiscal impacts amounting in the billions are sobering for us all.


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We cant change international oil prices but we can manage factors within our

control. And it will not be business as usual. It cannot be. Not when we have

seen a $20 dollar drop in pricesnot when we have to build a budget based on

projections for between $65 to $75 dollar oil for at least the next year.

Oil prices in the first six months of this fiscal year generated positive second

quarter results and a net surplus position. At this point, our forecast surplus for

the end of the year has been updated to $933 millionand we will stay in the

black for the rest of this fiscal year.

While the short-term outlook to the end of this fiscal year is positive, a return to

extreme volatility in the energy market has created conditions we cannot ignore.

In the long-term, a budget tied to volatile energy prices presents a significant risk

and it is incumbent on us to adjust our expectations and our spending to begin

to mitigate these risks over the long term. The solution to our present

circumstance cannot be to just wait for the next upswing in pricesindeed, our

forecasters are telling us that a lower-price environment may not be short-term.

And so we must tackle what we can control - spending must aligned with a

realistic assessment of financial capacity. It must reflect a level that can be


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sustained responsibly and without imposing levels of debt that pose a risk to the

prosperity of our children and grandchildren.

So where do we go from here? We have work to do when it comes to forecasting

oil pricesand pinning down the actual impacts on our budget, but it is clear that

we cant just wait for better prices to return.

The energy market is volatile. It is affected by external global factors. The one

lesson we must learn is that we cant just let ourselves stay at its mercy.

Not when we are waiting to see whether the impacts will add up to a $1 or $4

billion dollar difference.

And now when its not as simple as just applying some strict across the board

cuts as was done in the past. If the impact to our budget reaches as high as the

$4 billion watermark, we could lay off every member of our civil service and not

solve the problem. So there are no simple solutions.

Management of our present circumstances will mean adoptingand holdingto

a number of key principles that will be reflected in the way we manage our budget

going forwardand these will represent major structural changes.

I want to lay some of these key principles out today. First, we will keep our

spending in checkensuring that we operate with balanced budgets. At


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minimum, this will mean limiting spending growth to below population plus

inflationcurrent forecasting would mean this would likely be tighter.

I know that when a province is growing as fast as ours is, this represents a

significant restriction and Albertans will feel it. It wont be easy not on

government and not on Albertans. Tough choices will need to be made.

And we will make them.

Second, we wont ask Albertans to tighten their belts without tightening our own

firstthrough clear demonstrable adjustments to our bottom line. Albertans will

not be asked to pay more, without first seeing clear evidence that we are doing

more with the dollars we already have.

Third - we will move forward in a way that protects the essential services that

Albertans valueefficiencies must be found here too and much better value must

be found.

When we look at our essential services our biggest challenge is in realizing better

value for the money we spend. We have no choice but to do much better,

because much more money is not an option.

Fourthwe will make more realistic long-term projections around revenue

expectations from our resourcesbuilding budgets around more realistic

projectionswhich right now means expectations of oil in the $65 to $75 range.


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Fifth, we will be decisive and clear with Albertans. We will deliver budgets on a

consolidated basisin line with the expectations of our Auditor Generaland

developed over a 10-year planning horizon, with three-year detailed budgets.

This will provide clearer and more transparent planningenabling an optimal

level of certainty and flexibility in response to the external volatility that will

always be a challenge.

Sixth - When we have surpluses, we will be prudent and equally disciplined in

how we respond here and the days of thinking that surplus budgets should free

up spending must be over.

Any surpluses must be directed into a balance of infrastructure investment, debt

repayment and savings. And while well be doing what we need to do in the face

of lower oil prices, there are some things we wont do.We wont be introducing a

sales tax. And we wontbe moving away from our provinces low tax advantage.

Indeed, we will alwaysalways - honour and protect a fundamental economic

advantage that Albertans have worked hard to earnindeed it is The Alberta

Advantage - we will continue to be Canadasmost competitive tax region full

stop.

GROWTH MANAGEMENT


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By making the tough choices today, we can begin to lessen the volatility and

uncertainty that has too often impacted our budgeting. And here is another

choice that we have to make. We will continue to invest in Alberta and its growth.

One of the tough truths of our current economic context is that despite volatility

in our budgeting, growth projections will continue to be strong. Let me share

some numbers with you.

In the next ten years, Albertas population is expected to increase by more than

840,000more than 680,000 of these new Albertans will be children born here.

1,100 children are born in Alberta every single week. About 100,000 new

Albertans arrive here every year through immigration and migration.

In 2013there were 665,000 school aged children in Albertaby 2023, we project

there will be 829,000a 25% increase.

At the other end of the scale our aging population is also growing extraordinarily.

Over the next ten years, our retirement age population is projected to grow by

60% - that is compared to 22% growth in our youth population..and compared

to a projected increase in our working age population of 13%.

These numbers tell an incredible tale:

- About the number of classrooms that 25% more children will fill.


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- About how many continuing care spaces will be required for 60% growth in

our seniors population.

- And about implications we will see in terms of impacts to our need for

housing and health care, roads and other public infrastructure.

I know how important public infrastructure is to our quality of life and our public

infrastructure must be ready to support and sustain a population of 5 million

people by 2025. I heard it time and again from Albertans this summer, many of

whom were experiencing infrastructure pressures in their own communities.

Its one of the reasons why, after second quarter, weve increased our forecast for

the provinces Capital Planto $7.3 billion. We are investing prudently and

carefully but in a way that ensures we do not repeat the mistakes of the past

when it comes to failing to keep pace with growth.

Population growth and the pressures that come with it is one of the most

significant long-term challenges facing this province. And well be dealing with

those pressures for a long time to come.

Were addressing immediate infrastructure challenges through tools such as

alternative financing and borrowing. And our budgeting on the capital side will

following some clear principles too.


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Albertans have told us theyre comfortable with government borrowing for the

priority infrastructure projects they need, as long as rules and limits are in place

and there are.

Our first principle here is that going forward we will borrow only for capital

projectsnever for operating expenses. Second, the portion of our capital

budget directed to infrastructure maintenance must be increased and sustained

in order to get the best and most efficient use of all of our capital assets over

their full life cycle.

Third: We remain committed to paying down that debt as quickly as possible.

We will impose reasonable limits on debt, ensuring that Albertas AAA credit

rating will continue to hold firm.

Our surplus position this year has given us some flexibility this year, and, in the

second quarter, our forecast for direct borrowing was $2.7 billion lower than the

budget forecast.

Thats significant. As most of you know, lower direct borrowing saves on debt

servicing costsmoney thats better spent on other thingslike reducing our

debt even further. Further, Alberta will never be put in a net debt position.


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Indeed, Alberta remains the only province in Canada with no net debt. At the end

of the 2014-15 fiscal plan the debt-to-GDP ratio in Alberta will be less than 7 per

cent.

Compare this to Greece with a debt-to-GDP ratio of 145 per cent.

Or the US at whose debt-to-GDP ratio is about 100 per cent

The level of public debt in Japan in 2011 was more than 200 per cent of GDP.

Even Norway has a public debt to GDP ratio of 49 per cent.

This no net debt position is an economic advantage that we must sustain.

Managing through fiscal challenges

Alberta is resilientand while I cannot cushion the challenge ahead, we have the

capacity and know how that will support our efforts to adjust.

Despite the volatility of the energy market, Albertas economy remained strong

after the first six months of the fiscal year and long-term growth projections are

solid.

We have the strongest balance sheet in the country, and our forecasts show that

while a sustained low-price environment will have impacts, our long-term growth

projections remain strong.


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Just last week, Moodys reaffirmed Albertas strong AAA credit position noting

that our Province has Canadas strongest credit protection against low oil prices,

even though it is the biggest oil-producing province, with cash and portfolio

investments equivalent to three times its debt and 75% of its total expenditure.

So while there are adjustments aheadthe fundamentals here and the resilience

of our province will ensure we have the tools to make the changes we must make,

and move forward.

Market access

The third pillar of our overall fiscal plan is to address the fundamental challenge

of market access.

We know what a significant factor the price Alberta gets for its oil is market is

the direct costs annually just in Federal and Provincial government revenue

reaches $3 billion.

Gaining market access for Albertas energy and for Albertas other products is

critical for Alberta to realize its full potential and maximize the value of our

resources and our products.


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Our ability to seize opportunities in the Asia Pacific region will fundamentally

shape how fully we can respond to the need for investments in schools,

hospitals, roads and growing communities.

This is why we need better transportation infrastructure: better roads and

highwaysimproved rail and port capacitybetter air connections

and of course, more pipeline infrastructure to get our energy products to

tidewater and to promising new markets overseas.

Tidewater accesswhether east, west, south or northmatters. It is essential.

My government will continue to build partnerships with Canadian provinces,

territories and in Ottawa to gain support for expanded export and transportation

capacitywhether by truck, air, pipeline or rail.

We have begun to do this through the New West Partnership with our closest and

best partners, BC and Saskatchewan.

Preliminary discussions have also occurred with the Premiers of New Brunswick

and Nova Scotia and it will be a topic of discussions early next week in Ontario

and Quebec.


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It is why we have refocused our advocacy efforts into the United States, where I

believe there is growing bi-partisan support coming into the US Congress and

Senate.

I will be traveling to Washington in January to advocate for market access. Il l

also be meeting with New Jersey Governor Chris Christie next week who,

incidentally, will also be speaking to the Chamber.

Despite all of our challenges, Alberta remains the best place in Canada to have a

business, raise a family, and enjoy your life. And a major part of that is because

Albertans always create the conditions for our own success.

Managing our fiscal challenges and bringing forward the structural changes

needed to support long-term fiscal sustainability will continue to make this so.

We have our challenges. And I wont cushion it: we will be making some tough

decisions and the impacts will be felt. But lets be clear: were in it for the long

run.

And the long-run advantage of advancing long-terms solutions now is less

volatility and uncertainty over the long-term. And Albertans are resilient - there is

no province better-positioned to weather this storm.


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Ive said it often: Alberta is under new management. Were not afraid of hard

work, and we are doing the work so that our province remains a place where all

Albertansand Alberta businessescan reach their full potential.

My government is about balanced budgets. Were about keeping taxes low.

And were about fiscal prudence and maximizing the economic opportunity for

Albertans.

Going forward we will spend cautiously and wisely, focusing on the core services

and infrastructure that reflect Albertans priorities by using sound, conservative

principles. Because if we get it right, our challenges wont be carried over to the

next generations of Albertans. Because this is how Albertans have always,

always built our success.

Thank you.

calgary chamber of commerce - premier prentice - november 28, 2014

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