Higher energy prices boost Alberta's second-quarter fiscal outlook
Projected government revenue is up by almost 25 per cent
Strong oil prices throughout the summer are dramatically reducing Alberta's forecast deficit, says the province's latest fiscal update.
Government officials on Tuesday predicted five times as much bitumen royalty to flow into provincial coffers compared to their budget forecast last February.
The assumptions in the province's second-quarter fiscal update were drawn up before the World Health Organization declared the omicron variant of the virus that causes COVID-19 a variant of concern.
However, the province's predictions do account for ongoing economic uncertainty as a result of the pandemic.
"It reminds us that we need to focus on what we can manage," Finance Minister Travis Toews said. "A focus on economic growth, and holding the line on spending."
For now, Alberta's economy is a beneficiary of the oil and gas revenue roller-coaster.
Bitumen royalties now make up 70 per cent of all non-renewable resource revenues in the province — which officials confirmed is the highest proportion ever.
Those non-renewable resource revenues, combined with more tax revenue, federal government transfers and investment incomes than expected, will drive down the forecast deficit this year to $5.8 billion — substantially lower than the projected $18.2-billion deficit for 2021-22.
Projected government revenue is up by almost 25 per cent, with the province forecasting nearly $58 billion flowing in by March 2022.
An unplanned $1.4-billion disaster recovery expense to help farmers besieged by drought is driving up total expenses this year to a forecast $63.7 billion, according to the government's second quarter fiscal update.
It leaves the province on track to be $101.6 billion in debt by the year's end, which is about $9 billion less than the finance ministry initially foresaw.
The last fiscal update was released on Aug. 30.
The anticipated $2.9 billion in corporate tax revenue this year is less than the $4.1 billion brought in during 2019-20, before the government cut the corporate tax rate to eight per cent from 12 per cent.
- High oil prices help reduce Alberta's forecast deficit by $10.5B, according to Q1 fiscal update Soci
Corporate taxes are not anticipated to rebound to 2019 levels until 2023, government forecasts show.
Toews said drawing in equal revenues with a lower tax rate is a sign the policy is working.
The most current fiscal update does not contain a plan to balance the budget, a core promise by the United Conservative Party during the 2019 election.
At the news conference Tuesday, Toews said the government plans to re-establish a timeline and path to balance the budget after the COVID-19 pandemic. He repeated a pledge to strike a panel to study the revenue side of Alberta's balance sheet, but gave no timeline for that work.
The update projects a $2.3-billion deficit in 2023.
Although he touted recent private investments in the financial sector, petrochemicals, cloud computing, and other areas, Toews wouldn't say at what point Alberta would no longer be reliant on volatile oil prices to balance the budget.
The "mismatch" between the province's volatile revenues and consistent costs is a chronic concern that needs a resolution, said Charles St-Arnaud, chief economist at Credit Union Central Alberta.
St-Arnaud said rebounding resource revenues are hardly a surprise to anyone following the oil market, but are a "positive tailwind" to help the rest of the economy.
NDP finance critic Shannon Phillips said revenue increases aren't trickling down to help Albertans with the rising cost of living. She pointed to static income tax brackets pulling in more money from citizens and rising fees.
"I think it demonstrates a profound disconnection from ordinary people's lives," Phillips said.
Toews said the best way to drive down costs is to create an environment that allows more competition in the private sector. He said the federal government is mostly responsible for managing the pressures of inflation.
With files from Audrey Neveu and Michelle Bellefontaine