High oil prices help reduce Alberta's forecast deficit by $10.5B, according to Q1 fiscal update
First-quarter fiscal update says little about future impact of COVID-19
Higher-than-expected oil prices have Alberta forecasting a $7.8 billion deficit at the end of the 2021-22 fiscal year — $10.5 billion lower than anticipated in the February budget.
The figures are contained in the first-quarter fiscal update, released Tuesday by Finance Minister Travis Toews.
The Q1 report reviews Alberta's financial performance in April, May and June of 2021, and looks at where the province believes its finances will be on March 31, 2022.
Resource revenue is forecast at $9.8 billion, which is $6.9 billion higher than Budget 2021. The price for a barrel of West Texas Intermediate, the benchmark used in Alberta forecasts, averaged $65 US over that period, an increase of $19 from the budget estimate.
Although the sudden oil price increase is good news for Alberta's finances, not everything is rosy.
Regarding oil prices, the report cautions: "The rate of change in the economic outlook and government revenue once again displays the volatility faced by Alberta, the need for economic diversification, and for caution in fiscal planning."
Burden on taxpayers
Meanwhile, taxpayer-supported debt is expected to continue to increase to $105.7 billion — $12.7 billion more than last year but $4.9 billion lower than forecast in the February budget.
While there are signs of an economic recovery, the forecast says little about the potential economic impact of the fourth wave of COVID-19 beyond noting that the risk of "the spread of more contagious variants" remains.
In a news conference, Toews said while the current surge in cases will have a "bumpy" fiscal effect, the province's economy has been "resilient" throughout the earlier waves.
"I think we've taken a very cautious, prudent perspective in terms of revenue projections and it's one that again includes the expectation that we'll continue to battle the pandemic for weeks and even months ahead," he said.
Recovery in industries that were adversely affected by health restrictions — like accommodation, food services and recreation — is not expected until 2022.
Despite the improved fiscal outlook, Toews reiterated his desire to align public sector salaries with "comparator provinces" in Canada.
Alberta remains the only Canadian province without a provincial sales tax.
Alberta's Official Opposition NDP said the improved revenue figures are due to higher oil prices, federal transfers and a strong market that has been improving the state of the province's investments.
"This news has nothing to do with any action the government has taken," said Deron Bilous, the NDP critic for economic development and MLA for Edmonton-Beverly-Clareview.
"They are factors that are based on world prices and so out of Alberta's control."
Ron Kneebone, an economics professor at the Univeristy of Calgary, says the projected $9.8 billion dollars in resource revenue is an "abnormally high" windfall.
He said the government can't count on this level of revenue in the future. He says the province has to come up with a plan to pay down the deficit that includes new revenue sources as well as spending cuts.
"Hoping and praying for continuing high oil prices is not a plan," Kneebone said. "It is a hope and a prayer. "
Some of the projected costs of COVID-19 recovery were listed in the fiscal update document. They include:
- $411 million for COVID-19 vaccination program, contact tracing, testing and continuing care
- $221 million for Small and Medium Enterprise Relaunch grants
- $143 million for the Jobs Now Program ($62 million from the federal government)
- $100 million for Critical Worker Benefits ($74 million from the federal government)