Alberta Budget Depends on Rising Oil Prices to Balance the Books
Alberta will run a C$10.3-billion deficit in 2017-18 and depend on steadily increasing oil prices to eventually balance the books, under the provincial budget released last Thursday by Finance Minister Joe Ceci.
“To no one’s surprise, Alberta did not slay the deficit dragon in its most recent budget. Or even introduce new weaponry for deficit slaying, or offer any new solutions to the problem,” CBC reports. “Instead, the red ink has spread and the hope seems to be that black gold will one day wash it away. Alberta is leaning on its old standby—oil.”
Media, economists, and opposition critics all described the release as a “fingers-crossed” budget that “promises a hospital, new schools, and more money for seniors and social services,” Canadian Press notes, but relies on a commodity price that any jurisdiction can try to predict, but no jurisdiction can control.
“There are no plans to balance outside of oil prices,” University of Calgary economist Ron Kneebone told CBC. “The only way out of it is to hope that oil prices come back to the 80, 90-dollar level, which no one seems to be expecting any time soon.”
UC economist Trevor Tombe added that if oil prices stabilize in their current range of about US$50 per barrel, Alberta can expect an indefinite run of $10-billion annual deficits. Ceci is projecting a balanced budget as of 2023/24, CBC reports, “as the economy recovers and economic diversification takes hold. As well, the province is optimistic about what new pipeline capacity will mean for corporate and government revenue.”
But that depends on oil prices hitting $68 per barrel by 2020. On Friday, Todd Hirsch, chief economist at the provincially-owned ATB Financial, said he foresaw oil stabilizing at $55 per barrel, not a high enough price to restore the Alberta energy sector’s previous trajectory.
“It kind of shifts it now to a lower gear, and it takes on a different role for the economy,” he told the Conference Board of Canada’s Western Outlook 2017 conference. “$50 to $55 stabilizes the industry, the petroleum sector becomes a stable backbone of the economy, but not the growth engine.”
At (virtual) press time, benchmark West Texas Intermediate crude stood at US$48.78 per barrel.
The province is also projecting that conventional oil and gas production will shrink in the years ahead, while tar sands/oil sands output grows 32%, from just under 2.5 million barrels per day this fiscal year to 3.3 million in 2019-20. That’s in spite of projections last month that the province will blow through its vaunted cap on tar sands/oil sands emissions by 2026.
“We are laying the foundation for a return to economic growth,” Ceci said. “Are we out of the woods? No. We will continue to bring the deficit down, to balance thoughtfully and prudently, and we will do so without sacrificing the supports and services families need.”
The province “is investing heavily in tax credits and other financial incentives to diversify the economy and get off what it calls the ‘oil and gas roller coaster,’” CP notes. “A new carbon tax, launched in January, is expected to bring in $5.4 billion over the next three years, to be reinvested in green projects from energy-efficient light bulbs for homeowners to new rapid transit lines.”
CBC tracks 28% of the carbon levy revenue going back to households in rebates, 24% to green infrastructure, 19% to grants to renewable energy and cleantech companies, and 11% to energy efficiency.