Canada’s two leading oil-producing provinces - Alberta and Newfoundland - are separated by 2,300 miles.
But they might as well be on different planets as they grapple with collapsed oil prices.
When, by chance, they delivered their 2016-17 budgets on April 15, Alberta opted to spend its way out of trouble by declaring it would not apply “austerity” measures to counter a record C$10.4 billion deficit, while Newfoundland applied a range of drastic measures to reduce its deficit from C$2.2 billion in 2015-16 to C$1.8 billion in the new fiscal year, hiking taxes on the average resident by C$3,000 a year.
Alberta: C$10.4 billion budget
Alberta’s C$10.4 billion figure is based on a West Texas Intermediate price of US$36 a barrel; if the benchmark reaches US$42 the deficit is projected to drop by C$700 million.
Alberta Finance Minister Joe Ceci said his province will avoid any income tax hikes, choosing instead to spend C$8.5 billion this year on key public infrastructure as part of a commitment to invest C$34 billion over five years.
The government’s objective is to create 100,000 jobs over the next three years, partly stimulated by lowering taxes on small business to 2 percent from 3 percent.
The current budget earmarks C$953 million for roads and bridges, C$892 million for housing and C$634 million on various climate change initiatives.
The cost is a drastic end to the year-old government’s commitment to cap its deficits. Instead its borrowing plans are expected to raise the total debt to C$57.6 billion by 2019, with Ceci warning that the province will not balance its books before 2024.
“Our province faces a choice,” he said. “The first is to slash and burn vital programs, services that Alberta families count on. That’s the wrong path. It moves us backward. Instead we’ll carefully manage spending.”
For all of Ceci’s bullish mood, he left a distinct feeling of unease by announcing the government will eliminate legislation introduced only six months ago that capped debt at 15 percent of gross domestic product to assure Albertans that borrowing would not run out of control.
Credit rating cut
Dominion Bond Rating Service was the first to react by lowering the province’s credit rating to double-A high from the prized triple-A, citing the government’s refusal to raise taxes or cut spending.
Ceci reinforced the gloomy outlook by referring to a “generational” change in Alberta’s oil-dependent economic outlook, suggesting there is no way this time that the province may never again power Canada’s economy.
Peter Tertzakian, an energy economist with ARC Financial, offered a more direct assessment, suggesting reinvestment in the industry will not resume until crude settles above US$50 for the long term, with the first major infusion of dollars going to banks owed money and not into development.
While leaving income taxes untouched, Alberta will phase in a carbon tax of C$30 per metric ton that will boost gasoline taxes to 19.7 cents per liter from 9 cents and cost the average Alberta family C$1,000 a year. The carbon levy is expected to raise C$9.6 billion over five years.
Newfoundland, whose gasoline prices are 20 to 30 cents a liter higher than Alberta, is adding a tax hike of 16.5 cents at the pumps.
No price forecast
Ceci broke with tradition by refusing to forecast oil prices, calling that a “fool’s game,” but he has based budgets beyond this fiscal year on benchmark prices of US$54 in 2017 and US$64 in 2018.
That translates into a decline in oil and natural gas royalties to C$1.36 billion, compared with almost C$9 billion in 2014-15, with bitumen nose diving to C$656 million from C$5 billion, conventional crude to C$333 million from C$2.25 billion and natural gas to C$151 million from C$989 million.
Oil and gas investment is projected to flat line at C$30 billion a year over the next four years, about half the 2013 and 2014 levels.
Alberta’s gross domestic product is expected to drop by 1.5 percent in 2015 and another 1.4 percent this year, making the first time in 34 years that the economy has contracted in successive years.
Newfoundland royalties slump
Newfoundland has seen its offshore royalties slump to C$502 million from a peak C$2.1 billion, partly reflecting maintenance programs which started last fall on its three producing projects (Hibernia, Terra Nova and White Rose), lowering output last year to 170,000 barrels per day from 213,600 bpd in 2014.
The only shreds of hope rest with the Hebron-Ben Nevis project, which is due on stream in late 2017 and targets eventual output of 150,000-180,000 bpd, plus a range of major offshore oil discoveries and exploration commitments by major players.
Because the province, traditionally seen as Canada’s economic backwater, has so few other economic opportunities, unemployment is expected to soar to 20 percent in 2019 from 13.1 percent.
“There is not one single choice in this budget,” said Finance Minister Cathy Bennett. “Every decision we make will impact somebody, somewhere, and probably not in a good way.”
