Alberta moving out of recession into modest recovery: quarterly update

The Alberta government had some good news to report with its latest quarterly update - real GDP is expected to grow by 2.4 per cent in 2017, meaning the province may be finally moving out of recession and into a modest recovery.

Province still forecasts a $10.8B deficit for the 2016-17 fiscal year

“Credit-rating agencies rate risk and don’t prioritize a government’s economic recovery or growth strategy," Finance Minister Joe Ceci said (CBC)

The Alberta government had some good news to report with its latest quarterly update — real GDP is expected to grow by 2.4 per cent in 2017, meaning the province may be finally moving out of recession and into a modest recovery.

According to the third-quarter fiscal update released Thursday, 18,000 jobs have been created since a low point in July 2016, with the majority (12,500) in the oil and gas sector.

"The evidence shows that the storm clouds are starting to recede with a little more sunshine peeking through," said Finance Minister Joe Ceci. 

The province is still forecast to end the 2016-17 fiscal year with a $10.8-billion deficit, the same amount forecast in the first- and second-quarter updates.

Due to higher oil prices, the $700 million cushion the government set aside to buffer against a sudden price drop has been eliminated and used to offset higher expenses.

The price of a barrel of West Texas Intermediate oil was at $47.50 on Feb. 17, so the government feels confident in using that cushion now the fiscal year is nearly complete.

Revenue increased by $1.5 billion overall compared to the April 2016 forecasts, partly due to higher oil prices.

The government now has to account for an anomaly in its budget, thanks to advice from the auditor general. Fourteen years of payments to TransAlta, ATCO and Capital Power for closing down their coal-fired electricity plants by 2030 will be recorded in this fiscal year as a one-time payment of $1.1 billion.

That payment makes up a good part of the $2.6-billion increase in total expenses from the March 2016 budget. Another $1.1 billion went for disaster spending for the Fort McMurray wildfire, and agricultural supports.

Other increases in operating expenses came from health and drug costs ($284 million), higher caseloads for income support, AISH and child intervention ($179 million), increases in school enrolment ($104 million) and agriculture, including help for producers impacted by low cattle prices ($72 million).

Ceci was asked when the government planned to slow spending and put additional revenue towards paying down the debt. He said many families are still not feeling the signs of recovery, so the government still needs to maintain services.

"These are early signs of recovery, this is not recovery," he said. "And we need to see more green shoots. Maybe in Alberta there's more little black oily shoots to grow across the province to tell us all that we're into better times."

Ceci said the province is expected to return to balanced budgets in 2023 and 2024.

Tax revenues slump

The Alberta government expects to take in $3.3 billion in corporate taxes, $981 million lower than forecast in the April 2016 budget. Revenue from liquor markups and fuel and tobacco taxes were also lower this year — another sign of the poor economy.

Capital spending is down by $1.2 billion but only because delays in projects are pushing the expenses into another fiscal year.

The Fort McMurray fire delayed some projects, such as repairs to the Northern Lights Health Centre. School construction delays account for $573 million of the capital spending reduction.

Direct borrowing is forecast to be $2.2 billion higher than forecast in the budget, with total debt servicing costs at $1.027 billion.

The update includes some good news from the oilpatch.

Increased drilling activity means the number of rigs is at its highest level since the early part of 2015. Investment in conventional oil production is forecast at $14.4 billion, a 20-per-cent increase from the $11.8 billion in the budget.

Investment in non-conventional oil production, including the oilsands, dropped to $16.2 billion from the $17.4 billion projected in the budget. The drop is attributed to cost savings and the completion of some large projects.

Critics slam NDP spending

Opposition MLAs say the news isn't good, especially since the NDP government keeps spending money. 

Wildrose jobs and labour critic, Glenn van Dijken, said 45,000 jobs were lost last year and the government has a record deficit. He said the gains in revenue were eaten up by more spending. 

"The NDP has consumed everything it gained and then some," he said.

Van Dijken said Ceci refuses to look at the size of government.  He said savings could be found by reviewing programs, leaving vacant jobs unfilled  and imposing a wage freeze on public service salaries 

Interim PC Leader Ric McIver said the government is unwilling to look for ways to save money or reduce the deficit. 

"This government would have you believe they have no choice but to spend, spend, spend," he said. "That the integrity of vital public services depends entirely upon them never saying no and always spending more." 

"When the minister is telling you the deficit is holding steady at $10.8 billion, it's only because the increase in their spending is offset by extra money that just happened to come in," he said. 

Alberta Party leader Greg Clark said when revenues go up, the deficit should go down.  He said the numbers in the third quarter update left him "speechless." 

"I am genuinely worried for our province," Clark said in a news release. "The NDP are fooling themselves and Albertans if they think this represents responsible budgeting. It doesn't. True leadership ensures spending stays in line with the economy without cutting frontline services."

The third-quarter update covers the period from Oct. 1 to Dec. 31, 2016. Alberta's fiscal year ends on March 31.