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Alberta is forecasting a long, drawn-out economic recovery from the pandemic, factoring a $750-million COVID-19 contingency fund into its fiscal plans for next year as it grapples with continued depressed oil prices and demand.

Before he tabled the province’s latest fiscal update in Edmonton on Tuesday, Finance Minister Travis Toews said global economic uncertainty will strain Alberta’s coffers for years to come, even as the projected deficit for 2020-21 dropped to $21.3-billion from the $24.2-billion forecast in August.

“We’re doing all we can to position the province for recovery, but I can’t say definitively that our toughest days are behind us,” he said.

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If the pandemic’s effects on Alberta’s finances continue into the 2021-22 financial year, as Mr. Toews expects, the province has built a $750-million contingency buffer into its deficit for that year to cover any unanticipated costs of the contagion. The province has calculated similar emergency funds into past budgets for spending that might be needed in areas such as fighting forest fires. Government officials did not specify whether the $750-million might be used for vaccine distribution or economic stimulus measures.

Provincial revenues are forecast to increase by nearly $3-billion since last quarter of this fiscal year, thanks largely to $1.4-billion in additional transfers from Ottawa via the Safe Restart Agreement and other pandemic relief programs. As well, tax revenues, investment income and timber royalties are expected to grow by about $700-million.

Alberta’s real GDP is expected to contract by 8.1 per cent in 2020, and government forecasters say it will not return to 2019 levels until early 2023. Total provincial expenses are forecast at $62.7-billion, $5.4-billion higher than estimated in Budget 2020.

The governing United Conservatives campaigned on a promise to balance Alberta’s books by the end of their first term in 2023, but Mr. Toews said that’s no longer an option. He said it would be “disingenuous” to predict when the province will be back in the black given Alberta’s heavy reliance on revenues from natural resources, which have taken a beating this year with much of the world in lockdown.

And although some international and Canadian policy groups predict oil consumption will decline further as countries move to reduce greenhouse gas emissions, Mr. Toews said fossil fuels will be important “for decades to come,” even as the economy diversifies.

Tuesday’s fiscal update took a conservative approach to energy modelling over the next 12 months, projecting that oil prices will be at or below private-sector forecasts. For example, it pegged West Texas Intermediate, the North American benchmark price for crude, at US$36.40 a barrel next year, well below the US$44.24 forecast by the U.S. Energy Information Administration, and Deloitte’s US$45.

But even though Alberta still faces a historically large deficit – and the government’s pledge to bring spending into line with that of other Canadian jurisdictions – Mr. Toews roundly rejected imposing a provincial sales tax.

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“To introduce a sales tax at this point of great economic challenge would be really poor economic policy,” he said.

Instead, Mr. Toews said, his government is focused on attracting investment and delivering efficient government services, foreshadowing possible cuts to the public sector in the 2021 provincial budget.

The fiscal update itself says that while the public sector “plays a key role in delivering public services, it does not create jobs or generate wealth.”

“Rather, public sector activities and spending are paid [for] by withdrawing money from the economy, through taxes, or by taking money from future taxpayers by borrowing for deficit financing,” it says.

NDP opposition finance critic Shannon Phillips called the statement an “unprecedented, ideological smear on health care and education and other front-line workers” that “calls these workers leeches whose primary purpose is to bankrupt the province.”

“That part is very concerning to me, because I think what it shows us is they’re going to continue with their plan of cutting health care and education despite the fact that we are now in one of the worst-managed pandemics in the country,” she said on Tuesday afternoon.

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Mr. Toews said while the public service is wholly appreciated right now during a pandemic, “ultimately, it’s private sector wealth creation that funds public service delivery” and is most important to the fiscal health of the province. The Alberta government has already contracted out some aspects of health care, such as support services in hospital.

In a glimmer of good news, Alberta has recovered more than 258,000 of the 361,000 jobs it lost between February and April this year. However, Mr. Toews warned that the labour market “still has a long way to go to reach full recovery.” Mr. Toews said it is unlikely to surpass 2019 employment levels until late 2022.

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