Taking pandemic pounding
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Alberta faces record deficit of C$24.2B, compared with Saskatchewan’s C$2.1B
for Petroleum News
Over recent weeks, Alberta Premier Jason Kenney has been bracing his 4.4 million residents for a “great fiscal reckoning.”
Having been proven right on that score, he is now faced with the daunting, maybe impossible task of cleaning up the mess that has landed on his table and starting the search for an economic recovery plan.
Kenney had repeatedly forecast a first quarter deficit of more than C$20 billion, which he warned would be “the biggest deficit in the history of Alberta by a country mile” and could set the stage for even worse to come.
In fact, he missed the mark by a wide margin. The red ink turned out to be C$24.2 billion, or C$16.8 billion higher than the pre-COVID-19 budget target announced in February. That could result in the largest deficit in percentage terms for any of Canada’s 10 provinces over the past 35 years.
If Ontario, with 3.5 times Alberta’s population, had posted a comparable fiscal update it would be forecasting a budget deficit for 2020-21 of C$88 billion, instead of its projected C$38.5 billion.
‘Grim reality’Finance Minister Travis Toews rated the number as “incredibly sobering.”
He told Albertans they face a “grim reality” that will force the Kenney government to “deliver the most cost-effective government services possible” when the next fiscal update is issued in November followed by a new budget in February 2021.
Toews said taxpayer-supported debt could soon reach C$99.6 billion, or C$22,400 per Albertan, by next March - compared with the province’s debt-free status for the early years of the 21st century and a modest C$11 billion in 2015.
More than 176,000 jobs have been lost since February and Alberta’s unemployment rate is expected to average 11.6% for 2020, compared with 4.6% in 2019.
Forecast revenue is C$38.4 billion, down from almost C$50 billion in the original 2020-2021 budget.
There is no need to dig very deep for an explanation in a province that has relied for decades on energy royalties to generate huge government and personal wealth.
Alberta now expects non-renewable resource revenue to bottom out at C$1.22 billion, or 3% of the total forecast revenue compared with 10% targeted in the February budget and 18% in 2014-15 when energy prices went into a nosedive.
The previous low for royalty revenue was set in 1974-75 when Alberta collected C$1.32 billion.
What is no longer realistic is the February prediction of C$5 billion, although there has been a recovery in the West Texas Intermediate benchmark and, more importantly, a gain in Western Canada Select prices for oil sands production to a steady US$33 a barrel.
Toews said the government will tackle the deficit by cutting costs and trying to jump-start the economy but was adamant that the revenue void will not be filled through fees or joining Canada’s other nine provinces by imposing a sales tax.
However, he did suggest that over the longer term Albertans need to discuss their revenue and tax structures, whether diversification is attainable and what role infrastructure projects will play.
“It is a long road to recovery, said Mike Holden, chief economist for the Business Council of Alberta, while tossing a sprinkling of hope into the mix by suggesting there is reason for Alberta to be positive.
It is not clear whether he has an insight into what the government has in mind for a multi-billion dollar recovery program that sources say will be laid out in two stages: short term investments centered on infrastructure spending of C$500 million for shovel ready jobs and longer-term efforts to diversify
For those inclined to peer over the fence into Saskatchewan, Canada’s second largest producer of oil and natural gas, provides a source of envy.
Based on first-quarter results, Saskatchewan Finance Minister Donna Harpauer has lowered her province’s estimate of red ink for 2020-21 to C$2.1 billion, down C$300 million from June.
With a population of 1.2 million, Saskatchewan says most business have reopened after the COVID closures and employment has recovered 56,000 jobs, boosting revenue forecasts to C$14 billion, a gain of nearly C$400 million since the original budget.
- GARY PARK