Alberta on track to historic $24.2B deficit thanks to pandemic, oil price slump
Debt projected to hit nearly $100B by March 2021, finance minister says
Alberta is on track to end the current fiscal year with a $24.2-billion deficit, the largest in the province's history, and the finance minister is suggesting more cuts are on the way.
The figure was contained in the first-quarter fiscal update released Thursday by Finance Minister Travis Toews. The deficit is forecast to be $16.8 billion higher than was estimated in the provincial budget in February.
Revenue is projected to drop $11.5 billion over the course of the current fiscal year. The report reflects Alberta's financial situation in April, May and June, a period when the province was mostly shut down due to the COVID-19 pandemic, and oil prices sunk into negative territory.
Debt is now projected to hit $99.6 billion by the end of March 2021 — up $25.4 billion from 2020 — for a debt-to-GDP ratio of 22 per cent. The cost to service that debt is forecast at $2.2 billion.
The province is now forecasting total revenue will be $38.4 billion, down $11.5 billion from the budget. Total forecasted expense is now pegged at $62.6 billion, up $5.3 billion.
In a news conference before his speech in the legislature, Toews deflected questions about where the government would cut, advising reporters to "stay tuned" for a three-year fiscal update coming in November, and the 2021 budget in February.
WATCH | Finance Minister Travis Toews presents highlights of the fiscal update:
He ruled out revenue increases like new taxes and instead focused on measures to increase economic growth and deliver government services more "efficiently."
"We believe at a time like this that it's absolutely essential that Alberta delivers the most efficient services possible," Toews said. "We are an outlier and we can no longer afford to be an outlier."
The government's plan to balance the budget is also on hold. Toews said the current uncertainty means he can't provide a credible date for when the deficit could be eliminated.
Toews used part of his speech to blame spending by the previous NDP government for the current fiscal situation. The NDP government also dealt with a catastrophic oil price drop in its first year in power.
"The crisis that struck in March not only killed the economic green shoots we were finally seeing across the province but it highlighted every weakness created, perpetuated and exacerbated by our colleagues across the way," Toews said.
"Our friends across the aisle did nothing in their four years to control the cost of government ... with a pandemic and economic crisis, those high costs have drove the results I am presenting today."
WATCH | NDP Official Opposition critic for finance Shannon Phillips responds to government and its fiscal update:
Resource royalties lowest in nearly 50 years
According to economic analysis contained in the report, Alberta will see a decline in real GDP this year of 8.8 per cent.
Alberta Finance was criticized for projecting a rosy $58 US benchmark price for West Texas Intermediate crude in the February budget. The WTI price is now projected to be $35.60 US for the rest of the fiscal year.
Resource revenues have dropped to $1.2 billion, the lowest amount since the early 1970s.
Bitumen royalties are projected at $686 million, $2.5 billion lower than budgeted. Crude royalties have dropped by $819 million to $316 million.
The significance of the fiscal update was heightened by the way it was released. Usually, quarterly updates are presented by the minister during a news conference. This update looks much like a budget, with the legislature convening for a one-day sitting.
Lethbridge-West MLA Shannon Phillips, the NDP Official Opposition critic for finance, started her 10-minute rebuttal by criticizing the optimistic tone expressed by Toews in February for being inaccurate.
As for Toews blaming the deficit on the COVID-19 response, Phillips said the federal government, not the province, has done all the financial heavy lifting on economic relief.
"Albertans might be willing to accept a $24-billion deficit, the largest in our province's history, one of the largest in any provincial government's history, if they were getting something in return," she said.
Phillips accused Premier Jason Kenney of relying on outdated solutions to deal with current economic problems. She said the government's corporate tax cuts didn't create jobs even before the pandemic.
Trevor Tombe, associate professor of economics at the University of Calgary, said he was looking to see how the government plans to fill that fiscal hole.
"If they don't present a plan, then that's going to be a really big missed opportunity," Tombe said in an interview Wednesday.
"We need to have a conversation started earlier around where we go from here, how do we overcome this fiscal challenge, [and] what are we going to do on the revenue side of the budget, which has been missing in that conversation to date."
Kenney's government has so far been reluctant to deal with the revenue side of the equation, preferring to focus on spending restraints.
The government has cut corporate taxes in a bid to encourage business growth in the province, a measure the Opposition NDP says cuts into the province's revenue streams.
The government is opposed to a provincial sales tax. Tombe said he doubted that would be on the table. Other revenue sources include increases in gasoline, alcohol and cigarette taxes, or even health-care levies.
Alberta is facing similar challenges as many other governments around the world trying to deal with the impact of the pandemic.
Borrowing to get the province through the pandemic is the correct course of action for the short-term, Tombe said.
"Alberta has a strong balance sheet and very low borrowing rates," he said. "So it is appropriate for us to be borrowing right now during a crisis situation like this.
"What we need to confront and have a conversation about though is, what do we do next year and the year after?"
The Loop podcast just dropped a fresh episode about Alberta's record-breaking fiscal update.