Royalties stemming from Alberta’s non-renewable resources, such as bitumen and natural gas, will drop to their lowest point in more than four decades this year, according to the provincial government’s updated forecast that calls for a record deficit.
Alberta governments have long relied on energy royalties to buoy their budgets. But this year, the province expects non-renewable resource revenue to drop to $1.22-billion, which translates into roughly 3 per cent of the province’s total revenue forecast. This is down from the roughly 10 per cent that the United Conservative Party expected when it delivered its budget at the end of February, before the economic shutdown.
Saskatchewan projects $2.1-billion deficit, says economy could be back to pre-pandemic levels in 2022
The previous low for royalty revenue in dollar terms was set in 1974-1975, when Alberta collected $1.32-billion, according to government statistics. Alberta’s energy royalties accounted for 18 per cent of total revenue in 2014-2015, when energy prices started to slide.
Travis Toews, Alberta’s Finance Minister, said the government will tackle the expected $24.2-billion deficit by cutting costs while trying to jump-start the economy. But Mr. Toews provided few details about where his government will pull back spending or how it will diversify Alberta’s economy, a promise finance ministers have been making – but not delivering on – for years. The government will not fill this revenue void through taxes or fees, he said.
“At a time like this – at a time of great economic challenge for so many Albertans and Alberta businesses – to look at raising costs for those businesses and for Albertans, I believe would be irresponsible,” Mr. Toews told reporters at Thursday’s first-quarter fiscal update. He did, however, couch this pledge.
“In the longer term, it will be important that Albertans have a discussion on revenue structure and tax structure,” he said.
The government, in February, expected the 2020-2021 deficit to reach $6.8-billion, and predicted it would collect $5-billion in energy royalties, a small sum by historical standards. The original budget was immediately criticized for its aggressive energy price forecasts and failing to account for the coronavirus that was beginning to sweep the globe.
“It was based off fairy dust – even back then,” said Lindsay Tedds, the scientific director, fiscal and economic policy, at the University of Calgary’s School of Public Policy. The revised budget does not account for the possibility of a second wave of economic pain fuelled by COVID-19. “These guys just double down on thoughts and prayers.”
Dr. Tedds cautioned against austerity, noting governments that opted to pinch pennies after the 2008 financial crisis ended up with paltry economic growth. Alberta, she argued, should spend money to make high-quality daycare more affordable. That, she said, would allow more women to participate in the labour market.
Alberta expects to collect $38.4-billion in revenue this fiscal year, down $11.5-billion, or 23 per cent, from its original forecast. The province will unveil a three-year fiscal update in November; the Finance Minister indicated that he would provide more details around government plans then.
The government expects to lose almost $1-billion more than it initially expected on the sale of oil-by-rail contracts signed by the former New Democratic Party government. Energy Minister Sonya Savage told The Globe in an e-mail that her government has divested 50,000 barrels per day of crude-by-rail capacity, leaving around 70,000 still to be offloaded onto the private sector.
Mr. Toews said Thursday: “The reality is, with this energy crash and commodity price crash, crude-by-rail economics have changed drastically and that has increased the costs for Alberta to assign those contracts onto the private sector.” Continuing with the NDP plan now “would have been an absolute economic disaster.” Offloading the contracts, he said, was “significantly cheaper and more cost-effective.”
Premier Jason Kenney, in February, said Alberta would lose $1.3-billion when it offloaded the contracts onto the private sector. That number increased to $1.5-billion in Budget 2020, and on Thursday shot up to $2.1-billion.
The previous NDP government announced the $3.7-billion rail deal in February, 2019. It would have seen the province lease thousands of railcars to help bolster consistently low crude prices by increasing export capacity, shipping 120,000 barrels a day by Canadian Pacific Railway and Canadian National Railway. Then-premier Rachel Notley said the plan would open up much-needed rail capacity while generating revenue for the province, but Mr. Kenney said the plan was risky and was bound to lose money.
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