“Unprecedented” and “sobering” are words that Alberta politicians use to describe the province’s fiscal challenges, but this week the terms hardly felt strong enough.
The fiscal update for this year shows that the province has $100-billion in debt, a deficit more than three times what was forecast, and signals that the public sector is almost surely headed for more (but yet-unknown) cuts.
Everyone is in tough financial straits. But among the provinces, Alberta’s forecasted $24.2-billion deficit is high on a per capita basis, and as a proportion of its GDP. An elevated unemployment rate will mean a net outflow of people to other parts of Canada, according to the government update.
The bad news itself was not a surprise. Premier Jason Kenney had prepared his province for the gut punch in his press conferences in recent weeks, and has said he will not sugarcoat gloomy fiscal and economic numbers that have emerged from the COVID-19 shutdown and the pummelling of oil prices and demand. Anyone paying attention knew that the pandemic would result in a historic hit to Alberta’s resource-dependent finances.
The political questions, thorny for a United Conservative Party that has enjoyed no pandemic-related bump in political support, include how much worse it’s going to get, and whether the government is headed on the right path to remedy the situation.
In the crosshairs is the UCP’s constant rhapsodizing of Alberta’s resource sector over discussion of diversification, and its brand of “market liberalization” including corporate tax cuts and red-tape reduction.
Finance Minister Travis Toews said Alberta’s prospects were good before the coronavirus. “The pandemic, the energy price war, and global economic contraction blindsided our economy, just as it was beginning to show signs of improvement,” he said.
In the first two months of the year, he said, drilling-rig activity grew and oil production was up.
Then COVID-19 hit.
“Rigs drilling slowed sharply in March and was down nearly 80 per cent, year over year, in the second quarter,” said the fiscal report.
Some economists immediately called into question the government’s telling of history, saying there was little in the way of other signals that things were on the upswing in late 2019 or the first weeks of 2020. Many of the same voices want the UCP to implement a provincial sales tax to help smooth the sharp ups and downs that come with an oil-focused economy.
On this front, it’s questionable whether a new tax, at this juncture when the economy is so fragile, would materially pull Alberta out of the deficit hole it’s in. And for critics who say Mr. Kenney has no strategy on stabilizing revenues, he counters that his government’s plan is to create a low-tax jurisdiction with few regulatory burdens to spur jobs and investment.
A stronger question comes from the opposition NDP, which asks whether there is any proof that the move to expedite a corporate tax cut this year, to a low eight per cent, was a good one – and whether the loss of those tax revenues has actually created any jobs. It’s a policy that helps already established businesses, and was designed to attract big corporate players to Alberta. But it doesn’t sit well to many when money is so scarce: The massive drop in income tax, gaming and resource revenues contributed mightily to the deficit.
During debate on the fiscal update in the legislature, the NDP asked Mr. Toews how many major banks or insurance companies have expressed interest in taking up space in Calgary’s empty downtown office towers. There were no numbers given.
There are clear signs that the province is headed for more economic pain. Mr. Toews kicked the can down the road when he was asked Thursday about whether there will be more cuts to the public sector, telling reporters to look for another fiscal update in the fall, and the February budget.
NDP finance critic Shannon Phillips noted that the Canada Mortgage and Housing Corp. said this week that 21 per cent of its insured mortgage holders in Alberta have deferred payments. That figure is higher than that of any other province – it is, for instance, twice the percentage of those who have deferred their mortgages in Ontario. The pinch in Alberta could truly come when federal income and mortgage-deferral programs end.
It is politically convenient for the UCP to blame pandemic-induced chaos for the economic uncertainty. But it is also easy for the government’s critics to complain that the UCP’s economic plan isn’t working at a time when every government on Earth is up against the ropes.
And Canada’s export-focused economy, heavily concentrated on selling to the United States – whether it’s shipping aluminum or light trucks – is subject to global markets and market access granted by American governments. It’s not just oil markets over which we have little to no control.
Mr. Kenney said in an interview this summer that some of the criticism that the UCP hadn’t focused enough on publicly encouraging and welcoming diversification of Alberta’s economy is “fair comment.” During its first year in office, his government was focused on its (controversial) campaign promise of aggressively responding to federal and former provincial NDP government policies that he believed had damaged investment in the oil and gas sector. Now, he said, is a time to “accelerate” an economic diversification process that has already begun.
But for the moment, as ever, a rebound in resource prices and revenues remain the province’s key hope. And in a world still awash with oil, the coronavirus still dampening demand, and environmental concerns weighing on investment priorities, there are no sure things.
This is the pickle for Alberta. The Premier’s vision to rebuild the economy is focused on aggressive courting of business. His strategy might eventually show some results. But if the jobs and money come, it won’t be for years down the road. The economic pain for many Albertans is here now.
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