Alberta's already record deficit is projected to grow by more than $500 million, due mainly to the financial impact of the May wildfires in Fort McMurray, according to the province's latest quarterly update.
The latest fiscal update, delivered Tuesday by Finance Minister Joe Ceci, cites the wildfires as the main factor pushing the deficit $527 million higher to $10.9 billion.
- Preliminary cost of Fort McMurray fire estimated at $615 million
- Fort McMurray wildfire costliest insured disaster in Canadian history
Overall, the quarterly forecast calls for the economy to shrink by 2.7 per cent this fiscal year. That, added to the estimated contraction of the economy of 3.7 per cent in 2015, will create the largest two-year consecutive decline in the economy since the early 1980s.
Ceci said the province has no intention of abandoning the fiscal plan it began putting in place last year, and will not give in to pressures to make "knee-jerk cuts" to any programs.
"We've seen that picture before," he said of calls for cuts. "And it doesn't work out well for Albertans. The plan we have is one that all economists agree with."
Swift reaction from Opposition
The Wildrose Opposition was quick to hammer the NDP government for putting Alberta back into a net debt position for the first time in nearly two decades.
Though oil is trending higher than expected, wages are down three per cent this year, and Albertans should prepare their wallets for the government's new $3-billion carbon tax, set to come into effect on Jan. 1, 2017, the Wildrose said.
- Alberta carbon tax regime to be most stringent in Canada, Ecofiscal Commission report says
- Alberta defends carbon tax as report calls it aggressive
"Today is the end of the fiscal legacy Albertans worked so hard to earn," Wildrose Leader Brian Jean said in a statement.
"The NDP's plan is making things worse for Alberta families at a time we can least afford it. It's clear the NDP plan isn't working. We need to reverse course on the NDP's risky economic agenda, start saving pennies on every dollar spent across government, and restore the Alberta Advantage so we can get Albertans working again."
Fort McMurray fire impact
The finance minister's quarterly update takes into account $452 million in financial assistance from the federal government to help pay for the wildfires.
The updated numbers also reflect $300 million in lost revenue from drops in corporate and personal income taxes, and lost resource revenues due to fact that 40 million fewer barrels of oil were produced during operational shutdowns caused by the fires.
The update now forecasts oil prices for the year to average $45 a barrel, up from the $42 projected in the spring budget. If that forecast holds, non-renewable resource revenues would rise by $744 million for the year over those budget projections.
Spending to grow
According to the update, total government expenses are projected to grow by $1.2 billion since the last budget. That money is needed to cover higher than expected costs for things like disaster assistance, capital grants including 2013 flood support, debt servicing costs and $122 million extra in general operating expenses.
Those increased expenses include $12 million for a new grant program for small brewers, $100 million for pharmaceutical drug costs, disaster assistance for the Fort McMurray wildfires and flood assistance from last year.
Adding to the hardship is the continued impact of low oil prices. The declining investment in Alberta and lower resource production has had an impact on every sector of the economy, resulting in fewer jobs in construction, manufacturing, and even the hospitality industry.
Revenue collected shrinks
The province collected less revenue from corporate income tax, and resource revenue from royalties declined up to $25 million during the wildfires.
Because of the downturn in the economy, Albertans bought fewer cigarettes and spent less on gambling — two areas government has come to rely on for steady sources of income.
While a far cry from the population boom of a few years ago, Alberta's population is still growing and is expected to climb by another 1.5 per cent.
Despite the grim news, the Alberta government predicts the economy will see modest improvements in 2017, generated by the reconstruction of Fort McMurray, investments in infrastructure, and a slight increase in oil prices.