Alberta and Newfoundland and Labrador are expected to unveil unpopular budgets on Thursday as the resource-dependent provinces grapple with ballooning deficits and weak oil prices.
But they are taking vastly different approaches to the economic hardship, with Alberta expected to stick to its stimulus plans and Newfoundland poised to hike taxes and cut public-sector jobs.
Alberta's NDP government has spent weeks broadcasting how severe the province's deficit will be, but also justifying billions of dollars in infrastructure spending.
Meanwhile, Newfoundland's Liberal government has stressed deficit reduction and the need to raise revenue and slash expenses.
"Alberta came into this in a healthy enough fiscal position where they can run with more of a stimulus-type budget. There is probably not going to be a whole lot of restraint in Alberta," said Robert Kavcic, senior economist with Bank of Montreal.
"In Newfoundland, the situation is getting to be pretty pressing. You will have to see some kind of spending restraint and some kind of action on the tax side to bring the deficit down," he said.
The drop in oil prices to $40 (U.S.) a barrel from $100 in mid-2014 has hit the provinces' revenues hard.
Alberta's deficit is forecast at $10.4-billion (Canadian) for fiscal 2016-17 due to low oil prices. The government predicts resource revenue will drop to $1.4-billion in the fiscal year, down from the estimated $2.5-billion in the previous year, and $8.9-billion the year prior to that.
However, major pullbacks in spending will not accompany the deficit. Premier Rachel Notley told Albertans the previous government's cuts to health care and education were harmful. "Reckless cuts only download the cost of deficits onto Albertans, creating more economic pain and more anxiety," she said in a television address last week.
The jobless rate in Alberta is 7.1 per cent compared with 5.6 per cent a year ago.
Alberta is unaccustomed to high unemployment and creating jobs will be one of the pillars of the province's budget. Ms. Notley has promised her financial roadmap will make "significant new announcements aimed at supporting business to create jobs and diversify our economy."
In Newfoundland and Labrador, the deficit is projected at $2.4-billion for fiscal 2016-17 and on track to remain close to $2-billion for years if government spending continues at the same level.
"The revenue shock and deficit shock in Newfoundland and Labrador is absolutely huge compared to any other province and huge compared to Alberta," said Finn Poschmann, chief executive officer with the Atlantic Provinces Economic Council.
A third of the eastern province's revenues comes from oil royalties, which have cratered due to weak crude prices and declining production from mature offshore oil fields such as Hibernia and White Rose.
The province now expects revenue from oil royalties of $551.8-million for fiscal 2015-16 compared with more than $2-billion in the boom years. It's not just oil that has whacked the province's revenues. Low iron-ore prices triggered the shutdown of a Labrador mine and halted exploration activity in the area.
Newfoundland and Labrador Finance Minister Cathy Bennett has repeatedly talked about the tough choices her government will have to make to strengthen the province's fiscal position. The Liberal government is expected to renege on campaign promises to not raise taxes or cut jobs when it unveils its first budget.
The unemployment rate in the province is 13.1 per cent, nearly double the national average of 7.1 per cent. Consumer delinquency rates are also soaring, as well as the number of bankruptcies.
Credit-rating agencies have downgraded the province's debt and changed their outlook to negative from stable. Further downgrades would increase the province's borrowing costs when it desperately needs revenue to provide services and debt reduction.
"The last thing you want when you're under pressure for debt-service charges is to see your interest rates go up," said Mr. Poschmann.
Both provinces are on tap to receive millions of dollars from a special federal fund designed to help provinces hurt by a sharp economic downturn. Ottawa has also extended employment insurance benefits for most of Alberta and Newfoundland and Labrador.
Carrie Tait
Rachelle Younglai