Paying pandemic price; Alberta to spend on infrastructure, cut taxes
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Gary Park for Petroleum News
The answer from the 15-month-old Alberta government of Premier Jason Kenney to unmistakable signs of gloom washing over its economy has been to gamble billions of dollars on an economic recovery plan and dent the province’s once-treasured credit rating.
Topping the list is C$10 billion (C$3 billion more than was earmarked only four months ago in the 2020 budget) for infrastructure projects that are aimed at creating 50,000 jobs to twin some highways, repair bridges and lay natural gas pipeline extensions.
Just as bold, is an immediate cut in corporate income taxes to 8% from 10%, accelerated by 18 months from the government’s earlier target date. That is expected to wipe C$300 million from government revenues.
Comparing the new rate with British Columbia’s 12%, Kenney said that as employers work to recover from the wreckage caused by COVID-19 they “can be confident that Alberta will be the best place in Canada - by far - to locate, bringing with them jobs and prosperity.”
The overall recovery plan estimates the new tax will accelerate the creation of 55,000 new private sector jobs and stimulate C$13 billion in economic growth.
In addition, the government through a revitalized Alberta Enterprise Corp. will invest C$175 million over the next three years on capital funds to boost technology investment and attract early stage startup companies.
Initial response lukewarm The initial response to this big-spending approach was lukewarm from New York-based Fitch Ratings, which downgraded Alberta’s credit rating to double-A-minus from double-A, citing higher provincial borrowing and the resulting debt-to-gross domestic product burden.
Alberta Finance Minister Travis Toews said his government “remains committed to the responsible management” of its finances and will release an economic and fiscal update in August.
Kenney is counting on his plan “to address both the short-term and long-term challenges” facing Alberta by creating jobs that “will set us on the path for economic growth, diversification and renewal.”
He hopes Alberta’s “culture of resilience (will overcome) the greatest economic challenge of our time.”
Kenney’s strategy indirectly points the finger at Prime Minister Justin Trudeau’s failure to deliver on long-promised aid for energy industry.
Toews said the recovery blueprint will be focused on “various industry sectors that we know have a great future (in Alberta), certainly energy and agriculture.”
“We also believe that we can be very competitive and we have a bright future in the tech sector, tourism and petrochemical manufacturing.”
He said Kenney’s 12-member economic advisory council, that includes former prime minister Stephen Harper, has encouraged a focus on sectors “we believe can be very competitive,” noting that technology firms have already grown by 87% since 2009.
The urgent needed to pump financial help into oil and gas companies is reflected in an 80% decline in the number of active oil rigs from a year ago, when some thought the industry had hit bottom, as the service sector shed C$8 billion in spending and more than 900,000 barrels per day of crude production was shelved.
Call for federal help Times are so desperate that the Canadian Association of Petroleum Producers has called for help from Trudeau, including an immediate 100% tax deduction for capital investments, including those in clean technology and to reduce greenhouse gas emissions.
CAPP President Tim McMillan said a deduction program would be a “thoughtful tax change” that would be consistent with help extended to other industries across Canada.
Roughly in line with action taken by the Alberta government, CAPP said it wants the federal government to establish a panel of senior industry executives and government departments to underpin industry efforts to attract international investment. But there is no sign of any movement from the Trudeau administration.
The call comes amid industry frustration with federal liquidity support programs that were launched in April through Export Development Canada and the Business Development Bank of Canada.
Canada’s Finance Minister Bill Morneau said billions of dollars would be available to help oil and gas companies, including C$750 million in “repayable contributions” to help companies meet new standards on methane emissions from oil production facilities.
But there is little confidence in Morneau’s promises since he announced on March 25 that help for the industry was “hours, possibly days” away, adding “I’m not talking about weeks.”
At the time Morneau conceded that although the 10 largest sector companies have existing credit relationships with their banks “they are under strain too.”
The sense of despair among even the big league players boiled over in mid-June when Ovintiv (formerly Encana) and Enbridge slashed their payrolls.
Ovintiv laid off 640 staff, 25% of its workforce, and cut its operated rigs to seven from 23, saying the challenging reduction in global oil demand has “created the need for a dynamic response.”
Enbridge, the largest North American pipeline company, said that although it will not implement layoffs at this time it has limited cuts to buyouts, with 800 of its 11,000 employees taking the offer of early retirement, severance, educational or personal leaves of absence, or part-time work.
Liquidity call Canada’s Natural Resources Minister Seamus O’Regan said the industry has told him over many weeks that liquidity is the most vital need.
“So we have attempted to get that out,” he said. “I would acknowledge we still have some ways to go.”
Shannon Stubbs, the natural resources spokeswoman for the opposition Conservative Party, said she had been unable to find even a two-paragraph note on the Business Development Bank of Canada website about its loan program, adding she has been inundated with calls and emails from corporate leaders in Alberta “who are barely hanging on while they wait for help. It’s mind-boggling that (this program) is just allowed to drag on and on and on.”
Ben Brunnen, CAPP’s vice president of fiscal and economic policy, said companies are “increasingly concerned that liquidity won’t come in time.”
- GARY PARK
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