It's widely accepted that one of the reasons former Alberta premier Jim Prentice called an early spring election was because he knew the province's economy was going to get uglier before it got any better. While his premature trip to the polls didn't exactly work out the way he hoped, any hunch he had about worsening conditions in the oil patch was spot on.
Perhaps fortunately for him, they are not his problems now. They are Rachel Notley's. And there is furious speculation, to the point of hysteria in some quarters, about how the province's first New Democratic Party premier is going to handle the situation.
For her part, Ms. Notley has taken a calm, everyone-take-a-deep-breath approach to market conditions that have seen the price of oil drop below $40 (U.S.) a barrel. Alberta has certainly witnessed these dips in commodity prices before and survived. But it's the first price panic that has occurred with a centre-left government at the controls, one that has promised to bring in all manner of environmental and economic reforms that have only added to the worries of those inhabiting the oil and gas towers of downtown Calgary.
There are a couple of matters on the near-horizon that will certainly garner national attention. The first is the budget that the NDP will bring in after the federal election. The latest parlour game in the province is trying to guess how big the deficit will be. Many believe the latest collapse in oil prices guarantees a deficit in the $8-billion (Canadian) range, up from the forecasted $5-billion. I doubt it will be that high. People forget that for at least part of this fiscal year, oil prices were actually above where the Prentice government had budgeted them to be, so I would be surprised if the amount of red ink splattered over the province's balance sheets is as much as $3-billion over the mark.
That said, it will be up high enough to catch people's attention. As will be the government's deficit projections over the next few years. During the election campaign, the NDP promised to return to balance by 2018. I will be surprised if they are able to keep that vow amid the current global economic climate. The government may need to extend the balanced-budget horizon for at least a year and, if it does, likely the only people howling about it will be those on the opposition benches.
The one thing the NDP is unlikely to do is the one thing the Opposition Wildrose will be demanding in the face of such enormous fiscal challenges; make deep, deep cuts in government and put thousands of more Albertans out of work in the process. There are already tens of thousands of people who work in the oil industry sitting at home collecting employment insurance. The NDP will not want to add to those lineups.
So, there is one heckuva fight brewing in the Alberta Legislature.
The other area people will be watching is how far the government pushes reforms that could further affect the province's beleaguered oil industry. One of the most noteworthy is the royalty review the NDP promised during the election campaign. It is going ahead and this has many in the oil industry nervous.
I think their anxiousness is misplaced, however, at least for now. The review will commence, but the government will not institute any changes that will further hurt the oil patch. And that has been communicated quietly to industry leaders; still, many remain concerned and unconvinced the NDP will be able to avoid the temptation to find new ways to raise revenues amid such dire fiscal circumstances.
Many forget the party said any money raised through hikes in royalties would not be used for operating costs, but rather to boost the sagging Heritage Fund, which has been raided many times over the years. The NDP imagines an increase in oil levies providing the flow of cash needed to build the Heritage Fund reserves to eye-popping new levels, maybe not Norway levels but certainly higher than they've ever been.
But then, it's anyone's guess when the time will ever again be right to even consider such a move. The short- to midterm future for commodity prices is bleak. Sub-$40 (U.S.)-a-barrel oil could be with us for some time, which won't make governing in Alberta any easier.
But the NDP wanted this job – now, it has it.
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Gary Mason