Western Standard - Pity about the budget but investors should still love Alberta

00:00:00.000 Good evening, Western Standard viewers, and welcome to Hannaford, a weekly politics show.

00:00:22.000 I'm Nigel Hannaford.

00:00:23.200 It is Thursday, February the 26th, and in Alberta, it is Budget Day.

00:00:30.660 My guest today is Peter Piovic, a Calgary-based Senior Portfolio Manager at Wellington Altus Private Wealth Canada.

00:00:39.160 Welcome back to the show, Peter.

00:00:41.900 Nigel, thank you very much for having me here again.

00:00:46.020 Peter, a few hours ago, the Alberta government dropped its budget, and Finance Minister Horner confirmed what we have...

00:00:53.200 been expecting, a large deficit, $9.3 billion, and quite a lot of other headline news that

00:01:02.420 we didn't really want to hear, like more deficits in the future. Peter, welcome to

00:01:09.540 the show. Perhaps you can explain this to us. Thank you. So, what do you think, Nigel?

00:01:16.280 Does this sound like a doom and gloom budget? Well, that was my question for you, because

00:01:22.160 anytime there's a deficit I you know perhaps I'm just projecting from my own finances onto the

00:01:27.520 province but it always feels terrible when the outgoings exceed the incomings but government

00:01:33.360 financing is a different kind of thing so does this really change anything about the fundamental

00:01:40.640 strengths or weaknesses of the Alberta economy you're advising people on where to invest their

00:01:46.240 money is alberta still good very much so i did listen to the beginning of the um the budget

00:01:54.000 address of by minister horner he did seem a little bit conciliatory you know in his in his tone um

00:02:01.440 but the reality of it is is there's a lot to look forward to i mean myself i moved to alberta for a

00:02:06.880 reason four years ago you were in winnipeg yes i was in winnipeg janitoba and um you know i moved

00:02:14.080 to alberta for many of the same reasons that many others moved to uh to alberta um that it's one of

00:02:20.720 the best if not the best place in the country really uh if you're seeking um what would you

00:02:26.800 call it uh economic prosperity or opportunities in general and i don't really see anything changing

00:02:32.800 uh from that in this in this budget so just look at a few few things first of all deregulation

00:02:39.280 both in the United States and Canada, even federally, and in Alberta as well,

00:02:44.600 we're going through a deregulation cycle where regulations are being looked at

00:02:49.260 and it's being addressed as to how efficient or inefficient those regulations are

00:02:54.560 and are they helping or hurting the economy.

00:02:56.900 And certainly the push right now is to make things better and run smoother.

00:03:01.600 And it's quite well known that many projects have not gotten off the ground,

00:03:06.000 uh both in alberta and many other parts of canada uh due to uh basically an overly heavy regulatory

00:03:12.080 environment and i think there's a consciousness right now that that needs to change and alberta

00:03:17.680 is probably at the spearhead of that so that's maybe just to ask you about that regulatory

00:03:21.360 environment much of it has to do with imposing a green orthodoxy on the energy industry yes so

00:03:30.400 you can make the case of some of these things like containing methane leaks are just a good

00:03:34.720 thing to do anyway but when it becomes such a burden to the industry that is starting to affect

00:03:40.160 production and people's willingness to invest what have you seen into regulation that gives you hope

00:03:48.400 well first of all there's a bit of order if you look at the mou that was recently signed

00:03:52.720 um there's a lot more clarity in terms of the direction that they're going with respect to say

00:03:57.920 carbon capture and also industrial carbon taxes so while we may not all like what we heard there

00:04:06.800 at least we have some certainty and some clarity in terms of the direction that they're going for

00:04:11.200 starters and um and there's been like i said before multiple examples of projects just simply

00:04:17.280 not getting off the ground due to excessive regulation or approvals that just took you know

00:04:22.560 essentially way too long you know for them to come to fruition and some of those projects ended up

00:04:28.160 going to the U.S. so at least we have an awareness of that right now and I do believe change is

00:04:32.800 coming but it's not really just you know regulations like there's opportunities here

00:04:38.400 you know for the federal government with respect to tariff negotiations and negotiating a new trade

00:04:42.400 deal in the U.S. that if done correctly you know could could end up helping things in the next year

00:04:48.720 or two years. With respect to Alberta, we're in the middle of bringing up discussions on, say,

00:04:56.720 equalization payments, for example, and federal transfer payments, which again, no guarantees,

00:05:02.880 but there's an opportunity there for possibly Alberta to negotiate a more favorable deal. 0.99

00:05:11.520 Put another way, you know, we saw that $9 billion plus deficit right now, but

00:05:16.480 But what would the deficit be if we weren't paying so much in equalization payments as a collective society, not the government?

00:05:29.080 Of course, the government doesn't pay directly to the federal government for transfers, but the people of Alberta and the business of Alberta do.

00:05:36.560 So I would hazard a guess that it may not be $9 billion plus.

00:05:41.060 It'd be something less than that, if not even zero.

00:05:44.220 So there's opportunities there.

00:05:45.920 Well, what is considered to be a reasonable guess at the cost of equalization to Alberta?

00:05:54.220 I think it's pretty high.

00:05:55.540 It's quite high.

00:05:56.240 So it depends if you're looking at just equalization or total, let's call it transfers,

00:06:01.860 or transfers of wealth outside of Alberta.

00:06:04.280 And, of course, these estimates can vary year by year.

00:06:07.820 They're not the same every year, and they're always a moving target.

00:06:10.420 But if you look at, say, total transfers or total wealth net that are leaving Alberta,

00:06:15.440 per year, probably in the neighborhood of $12, $13, $14 billion a year.

00:06:20.520 And again, that comes from people and Alberta businesses.

00:06:24.720 If you look at specifics to how much of that goes to equalization, of which the majority

00:06:30.120 of that will go to Quebec, but not just Quebec, other Eastern provinces and so forth, it's

00:06:36.200 probably in that $4 to $5 billion range.

00:06:39.160 So that's a net loss of wealth leaving the province that's going elsewhere.

00:06:43.980 And I think the intent is good. You know, you want to share in the wealth to some degree across Canada, but some problems can arise from that. So for example, if certain provinces are receiving equalization for free, essentially, and that now disincentivizes them to develop their own natural gas resources.

00:07:05.500 So for example, Quebec, you know, has tremendous ability to generate resource extraction.

00:07:14.380 So does New Brunswick.

00:07:16.080 There's shale gas opportunities there and many other provinces, but maybe the incentive

00:07:21.060 is not quite there if they're receiving Alberta equalization.

00:07:24.420 So these are things that are hopeful.

00:07:28.960 We're not baked in.

00:07:30.620 No.

00:07:31.280 But they are opportunities.

00:07:32.900 They are opportunities.

00:07:34.240 is um the fundamentals of alberta like where we make our money the size of the skills of our

00:07:41.840 workforce uh they haven't changed but they're not but there's not enough so if what what are

00:07:52.080 the opportunities on the cost cutting side when you have massive increases in immigration into

00:07:58.480 the province okay so the cost cutting would be uh let's call it a controversial topic you know

00:08:05.680 because um there's a percentage of government spending that's actually attributed to gdp

00:08:13.200 okay and this is actually a good news story for alberta um you can measure province by province

00:08:18.320 you know across the country and basically ask the question it's like okay you know that province has

00:08:22.800 you know x amount of gdp how much of that gdp is directly attributed to government spending

00:08:29.760 and in the case of alberta it's the lowest in the country by far really yeah really yeah you

00:08:36.240 know it's still by there there are some provinces where that number uh could be 30 percent 40 percent

00:08:44.320 or even more than 40 percent you know without naming the provinces of course um and you know

00:08:49.040 In Alberta, I think I have the number here somewhere, but I believe it's in that 20 percentile range.

00:08:59.120 It's low.

00:09:00.160 It's substantially lower than other provinces.

00:09:03.080 So we're already pretty lean with respect to that as a percentage of GDP.

00:09:10.000 And then, but keep in mind, when you cost cut, there is also a hit to GDP.

00:09:16.120 In the case of Alberta, that hit is lower because it has a lower attribution of government spending

00:09:22.600 to GDP. I think a province such as Alberta would be more attractive to investors if they have a low

00:09:29.800 government investment in the economy. I mean, you don't want to invest in a private sector economy.

00:09:36.120 Private sector economy. Not a public sector economy. Alberta is a private sector economy

00:09:41.960 predominantly more than other provinces. Amen, and long may it last.

00:09:49.080 I am prepared to accept at base value the finance minister's line that the difficulties they face

00:09:57.640 this year are a consequence of low oil prices and of very high levels of in-migration.

00:10:06.120 Saying in-migration rather than immigration because it can be people like you who are 0.55

00:10:11.560 moving in yeah and you bring all your children with you and now we need a new school in northwest

00:10:17.400 calvary um so now seriously peter um if that's uh if we have a growing economy why do we not have a

00:10:29.080 growing tax base how much of this is really immigration how much is that oil is depressed

00:10:35.480 i would say the majority is i mean without looking at the details of the numbers uh you and i both

00:10:40.280 just, you know, they have a close, pretty short look at the budget.

00:10:44.540 Um, I, I'd say mostly it's oil prices.

00:10:46.880 I mean, they're, they're sure some could be attributed to, um, immigration,

00:10:51.860 whatever you want to call it, but it, but it's an offset again.

00:10:55.380 You know, uh, I moved here, you know, four years ago from Manitoba.

00:10:59.600 Um, a lot of, uh, immigrants, immigrants that come to Alberta are paying taxes. 1.00

00:11:04.960 Some are not.

00:11:06.240 So it really comes down to the proportion of, uh, the immigration

00:11:09.380 that's coming in? Are they economic migrants or the other types of migrants? So it might

00:11:16.440 come down to, you call it a quality over quantity argument.

00:11:21.200 So I guess what people want to know, what I want to know is how big a problem is this?

00:11:26.180 I mean, we have got inflation locked into the economy. So if we say we've got a $9 billion

00:11:31.780 dollar deficit today that's probably like a six billion dollar deficit ten years ago well not to

00:11:41.220 be quoted but uh these things do matter and sixty dollar oil today what uh what would that have been

00:11:49.940 ten years ago in terms of real purchasing power yeah so if you you know when i look at my bank

00:11:56.580 kind of see what you're saying investments are are higher numbers but they don't buy what they

00:12:01.460 what they uh bought 10 years ago so are we in as is this as bad as it looks no it's not um so again

00:12:09.700 uh so what you're referring to is is specifically monetary inflation as opposed to uh necessarily

00:12:15.140 just looking at cpi cpi is part of it but it's definitely more of a monetary inflation argument

00:12:20.100 so so to your to your point uh nine billion dollars today if you look at it 10 years ago

00:12:25.380 it's not 9 billion it's something less than that you know not to do the math in terms of what the

00:12:30.180 exact numbers are but you're probably not far off you know in in your in your estimates so

00:12:35.220 so you know but that also is attributable to um uh to gdp as well so gdp over time part of that

00:12:43.620 increase in gdp is actually also attributed to uh to monetary inflation so it kind of goes both ways

00:12:49.460 that's why it's really important to look at um gdp ratios whether it's net to gdp ratios

00:12:54.740 or um or or uh net gdp ratios or gross gdp ratios and in either case actually alberta

00:13:01.860 you know by far has the lowest um debt to gdp ratios in canada so despite the budget that we

00:13:11.780 just seen uh we are still far ahead of any other province in the country in terms of either net

00:13:18.900 debt to GDP ratio or even gross debt to GDP ratio. So what roughly would be our gross debt to GDP

00:13:26.200 ratio? It's in the budget documents. It's in that eight percentile. Sorry, not the gross. They quote

00:13:32.980 the net in the budget. It's in that, let's call it eight and a half, 8.7 range. The one thing I did

00:13:40.700 see briefly in the budget document that just got released a short time ago is they are projecting

00:13:47.140 that net debt to GDP ratio to rise over the next three years from in that eight percentile range

00:13:54.340 up to 10, 11, and 12. So what would be the GDP to deficit ratio for the federal government?

00:14:02.300 It's higher. Yeah, I think it's vastly higher. It's vastly higher. It's significantly higher,

00:14:08.920 but just also just to compare it to other provinces. So Saskatchewan is around 15%,

00:14:14.420 percent you know currently now that would be the next closest one um british columbia is around 26

00:14:21.140 percent a little bit over ontario's around 37 quebec's around 40 percent so you know once again

00:14:30.180 you know we're not really in a uh in a bad place and if you look at gross um uh gross ratios debt

00:14:36.980 to gdp uh alberta is again the lowest at around 30 percent nova scotia is closer to 40 british

00:14:43.140 columbia is about 40 quebec's at 83 and manitoba is also at 83. so your old home well yes all right

00:14:52.340 yes it is um so when when you advise clients and looking at enough investment in alberta

00:15:02.660 i say well you guys are are running deficits uh is any who's running the show there you know

00:15:10.340 do these people have a sure they have a low debt to gdp ratio today what was it 10 years ago are

00:15:18.820 they getting worse are they getting better cannot confidently place my money in alberta with the

00:15:25.860 expectation that the place is not going to go broke yes we are nowhere near the debt to gdp

00:15:32.420 ratios whether it's net or gross um to to the point where there's any discussion whatsoever

00:15:38.100 about going broke and far, far away from that. While nobody, including myself, likes the fact

00:15:46.420 that let's just say we might be going in the wrong direction somewhat in terms of both the net debt

00:15:53.620 to GDP ratio and also net debt and the deficit arising, nobody really wants to see that

00:16:01.540 necessarily, but we're still financially in a better position relatively than other Canadian

00:16:06.820 provinces and on top of that as well like just looking into the future um if you think it through

00:16:13.060 you know we're going through there's different names from some people might call it a fourth

00:16:16.860 turning or some people might want to call it um let's just say a lot of change that's happening

00:16:22.900 in the economy uh whether it's uh due to artificial intelligence uh that's coming to the forefront or

00:16:29.000 whether it's oh um deglobalization let's just say and reshoring and manufacturing to north america

00:16:37.280 All those things are happening.

00:16:38.640 AI is happening.

00:16:39.660 The reshoring is happening.

00:16:41.520 A focus on manufacturing is happening.

00:16:43.860 But with that, you know, that manufacturing needs energy.

00:16:47.780 Lots and lots and lots of energy.

00:16:49.880 And look where we live.

00:16:53.300 We have lots and lots of energy, you know, natural gas and oil.

00:16:57.140 And in the budget as well, there were provisions for the development of nuclear as well on top of that.

00:17:03.760 And so we could play a pivotal role in this shift towards having,

00:17:11.320 let's just say, more industrial capacity and manufacturing within North America.

00:17:15.360 We can play a pivotal role for that transition, call it de-globalization, 0.67

00:17:21.560 given the amount of energy and natural resources that we have

00:17:24.480 to the point that could really make this a wonderful place to live for decades to come.

00:17:29.920 Strange thing, you know, for decades we've been talking about globalization as a good thing,

00:17:34.660 and now you can casually drop into a sentence the word deglobalization

00:17:40.940 with confident expectation that everybody's, you know, good idea.

00:17:44.960 That's how we did that.

00:17:45.820 Yeah, well, it's complicated, but things are changing.

00:17:49.480 You know what can change that is a few wars.

00:17:52.520 So if you have a few wars where all of a sudden, let's just say that we're running out of ammunition

00:17:58.660 in those wars to the point, and the reason we're running out

00:18:02.680 is because we can't produce enough on our own

00:18:06.020 without asking others, you know, for that production

00:18:10.120 who may not want to give it to us.

00:18:12.680 Okay, well, that is a harder thing to predict,

00:18:16.880 and heaven help us.

00:18:17.580 I hope it stays that way.

00:18:23.440 So Alberta, the fundamentals in Alberta remain strong.

00:18:27.400 They remain very strong.

00:18:28.200 and you would advise uh people to continue to put their money here um i was i was struck by

00:18:40.440 the fact that there's no reported contributions to the heritage fund yes um i can sort of see

00:18:47.000 that you don't put money into your tfsa when you're struggling to pay your visa bill yes uh

00:18:53.480 if I can use that as an analogy, but are there any costs to breaking step in that policy?

00:19:01.720 Wouldn't it have been more biased to keep it going?

00:19:04.520 So potentially, I did read a quick excerpt in the budget document that the rationale there is that

00:19:13.000 the rate of return of the Heritage Fund on its own, so with no additional contributions to the

00:19:18.840 the head to the Heritage Fund, that they will, that the

00:19:22.740 province of Alberta will reach their targets for the Heritage

00:19:25.280 Fund by 2050. So in a way that you know, you might just do one

00:19:28.620 of these saying you have to do anything, we can just let it

00:19:30.460 grow, and it'll get there. However, and it is a however,

00:19:34.160 what that is, there's a risk in that too, as well. You're now

00:19:37.500 relying on that rate of return to continue being what it

00:19:42.480 currently is. And if it isn't for whatever reason, then that

00:19:48.000 may not hold true. But that's even just looking at it from a financial perspective. The fund,

00:19:54.420 from what I can tell, is invested primarily in financial assets. Another thing I may want to

00:19:58.520 bring up is other reserve funds in other parts of the world, including down in the United States.

00:20:04.020 It's not just a financial fund, so to speak. In these reserve funds, they hold assets,

00:20:12.440 call it minerals. It could be gold, it could be silver, it could be copper, it could be uranium,

00:20:16.760 It could be, basically think of it this way, things that the economy may need in the future, whether it's for industrial output, manufacturing, or some sort of a monetary base.

00:20:28.060 It doesn't necessarily all have to revolve around, you know, like looking at it just like an investment fund.

00:20:35.420 Of course, we look at the projected goal of 200, I think it's $250 billion.

00:20:40.440 I believe that's what it was.

00:20:41.620 Yeah, I have a sense around there.

00:20:43.860 what what 250 billion dollars is going to look like in 25 years 24 years time you've got the same

00:20:51.380 confidence out of that big number that you have have today it's like when you're planning

00:20:56.900 retirement when you're 25. right let's see just for inflation how much is that really yeah yeah

00:21:03.060 oh well i mean if you if you had the premiers there would you say maybe maybe expand the

00:21:09.380 the targets a little? I would say, if I had the premiums here to, and obviously it's not wrong

00:21:15.900 the way it's being done now necessarily, but there is an argument to be had or discussion to be had,

00:21:23.420 let's just say, of what does Alberta need in the next 20, 30 years? What does the economy of Alberta

00:21:28.660 need? And what of that that they need might, for whatever reason, come into shortage.

00:21:34.680 and if it does come into shortage you know uh you know should we not let's stockpile some of it or

00:21:42.780 at least have that available uh to the economy of Alberta in the future um or another argument would

00:21:48.920 be you know what happens to the to money let's just see or how or how money is valued uh over

00:21:55.580 the next you know 20-25 years and it's it's it's uncertain uh so possibly diversifying a bit away

00:22:02.680 from, uh, simply financial assets might be something you want to think about.

00:22:06.920 Yes.

00:22:07.960 Um, how, I mean, what does that actually look like?

00:22:10.640 Could you actually find an old reservoir and pump it, pump all the oil back into it?

00:22:15.020 Is that the sort of strategic reserve you're talking about?

00:22:18.420 Uh, I believe the United States has, uh, I don't know the exact number, but it's something

00:22:23.000 north of 20, uh, commodities that they classify as a strategic reserve.

00:22:28.380 Um, a lot of people don't really know that, but they do.

00:22:31.040 So they're thinking ahead in terms of what the economy might need, but it could be something as simple as, I guess, stockpiling potentially gold and silver as monetary assets, in addition to financial assets that are already there, and also industrial metals, you know, copper, you know, other industrial metals, possibly uranium, especially if we're thinking of, you know, incorporating nuclear reactors into our energy base in the next 10, 15, 20 years.

00:22:58.460 maybe having some uranium in storage to fuel those reactors would reduce the risk let's just

00:23:08.260 say of having to buy it at a higher price 10 years from now one of the um i'm picturing these

00:23:14.920 warehouses full of copper ingots yep um there he is well yes uh until you've refined it you don't

00:23:23.060 really know what you've got, do you? So I'm picturing this economy that we're building here

00:23:33.260 that is going to be different in kind. You made the point about the fourth turning and the end

00:23:40.340 of globalization and so on. Are we right to think then that in 10, 15 years' time, Alberta is going

00:23:49.080 to be doing the same things as it is now we once we did cows that's why we all you know have the

00:23:56.360 have the cowboy hats in july then we did oil are you gonna be doing oil forever

00:24:04.600 i could imagine we'd be doing oil for a very long time okay you know well into the next century

00:24:10.600 however that doesn't mean that that's the only thing we would do uh i can i can foresee a future

00:24:16.360 where we still have lots of oil, lots of natural gas,

00:24:20.280 but we have other sources of energy as well, including nuclear.

00:24:25.020 And who knows what's going to be invented in the next 50 to 75 years.

00:24:29.240 Who saw AI coming?

00:24:33.480 So we keep doing what we're doing,

00:24:35.740 Yep. And we keep trying to resist the higher wages in, I guess, let's face it, 80% of what they spend is in wages, and most of it is in education and health.

00:24:53.920 at the same time as we have an expanding population

00:24:57.540 and fulling oil prices.

00:25:00.900 Stay the course and tough it out.

00:25:04.500 Times will change and times will get better.

00:25:07.380 Times will get better.

00:25:08.300 They're really not that bad at the end of the day, even today.

00:25:11.860 But of course, I believe there's,

00:25:14.520 and this is one of the things that makes Alberta great. 0.66

00:25:16.480 There's this wonderful attitude in Alberta where

00:25:20.040 because things have been so well due to um let's call it the entrepreneurial and hard-working

00:25:26.700 appetite of of albertans our expectation level is so much higher than it is in other other places

00:25:33.060 and as soon as we just misstep a little bit um you know it's it's uh there's there's questions

00:25:39.520 about is this the end so to speak uh but that's although i'll look at that as a positive rather

00:25:44.100 than a negative. What about a sales tax? Oh, that's a complicated one. So I'll answer

00:25:50.860 really quickly this way. So a sales tax without a commensurate reduction in income tax, I would

00:25:57.940 say is a very bad idea. At the end of the day, you're removing wealth from Albertans and you're

00:26:01.960 removing their ability to spend that wealth into the economy. And you're also creating issues to

00:26:08.040 attract capital to Alberta, you know, from that. If the sales tax is commensurate with a tax

00:26:13.340 deduction uh so that it's either net neutral or a net benefit then that's something that could be

00:26:18.940 discussed um but uh but it shouldn't be just looked at as a as a quick um smash and grab let's say

00:26:25.040 i cannot imagine a government that would be faithful to any promise to well just this is

00:26:32.020 just a straight switch pretty soon this one will be back up again that's a concern and it's pick

00:26:39.000 politicians carefully but pick your province and alberta is the place that's on that note i think

00:26:44.440 we should wrap it up i would agree yes and i'm and i like the no sales tax you know here in alberta

00:26:50.280 by the way yes yes it's uh it was one of the reasons maybe come here exactly only one anyway

00:26:58.600 peter thank you so much for coming in today it's been really good to get yours because

00:27:02.520 But the investment advisor's perspective on a provincial budget as we go through uncertain times.

00:27:11.820 Yes.

00:27:12.140 Easy to panic.

00:27:13.680 It takes a little more discipline to just see the thing through.

00:27:17.640 Thanks, Nigel.

00:27:18.560 Peter, thank you.

00:27:19.520 Thank you.

00:27:19.760 For the Western Standard, I'm Nigel Hannaford.

00:27:32.520 Thank you.

Western Standard - February 27, 2026

Pity about the budget but investors should still love Alberta

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