Wildfires increase Alberta's deficit to $10.9 billion but NDP government remains committed to staying the course
Provincial Finance Minister Joe Ceci provided a first quarter update today on the state of Alberta's budget.
The short version:
- The province's deficit will be $10.9 billion for this fiscal year, $527 million higher than previously estimated due to production outages and evacuations that resulted from the northern Alberta wildfires.
- The NDP government isn't changing forecasts for spending or oil prices just yet, and remains committed to executing the plan as laid out in the original 2016/17 budget.
The full cost of the Wood Buffalo wildfires was reported at $647 million, including $300 million in lost royalties and revenues due to production outages around the Fort McMurray area. The government handed out about $100 million in debit cards to displaced Fort McMurray residents in June and transferred $200 million to the Red Cross for disaster relief. However, Alberta received $452 million in disaster assistance from the federal government, which helped reduce net loss to the province to $495 million. The wildfires have gone down as the most expensive natural disaster in Canadian history.
Provincial revenues increased by $708 million in the quarter due to better than expected oil prices and the $452 million transfer from the federal government. West Texas Intermediate has averaged US$45/bbl for the first fiscal quarter (which runs from April 1 to June 31), slightly higher than the US$42/bbl that had been projected.
The province's GDP is expected to contract 2.7%, revised lower from an original estimate of 1.4%. Alberta’s economy is expected to begin recovering in 2017, a full two years after the recession first began. Real GDP should grow by 2.4% in 2017, due in part to rebuilding in Fort McMurray, public infrastructure spending, higher oil prices and an increase in oil production.
Ceci highlighted several key stimulus programs, intended to help the province get back on its feet:
- capital spending will be increased for schools, hospitals and roads, which is expected to create 10,000 jobs over the next 3 years
- the Alberta Investor Tax Credit (AITC), which allows for a 30% tax credit to investors that provide capital for "non-traditional" industries
- the Capital Investment Tax Credit (CITC) which provides a 10% tax credit of up to $5 million for the purchase of new machinery
- up to $1 billion in new loans are being made available through ATB Financial and the Business Development Bank of Canada (BDC)
- the small business tax rate will be cut by 33% (from 3% to 2%) in January 2017.
The NDP government is sticking to its plan to protect social services while slowly reducing the deficit over time. Alberta's deficit will total $38 billion by the end this year, a record for the province but quite low by provincial standards. By the time the NDP face their next election in 2019, that number is expected to be closer to $58 billion. However, the government insists a balanced budget is possible by 2024 without drastic cuts in public spending.
Ceci reiterated that the province is still far too reliant on the energy sector and criticized the previous Conservative government for not taking steps to diversify the economy, spending too much money and not putting more savings into the Heritage Fund.
The Wildrose opposition Party remains critical of the NDP for not controlling spending and raising the cost of living for all Albertans. Alberta’s minimum wage will increase to $15/hour by 2018, a move heavily opposed by small businesses. New carbon taxes kick-in in the new year which will increase the price of gas and transportation of goods in general. The full impact of the provinces's carbon emissions cap and plans to de-carbonize the electrical grid has yet to be quantified and may cost taxpayers billions down the road.
The full speech and text is available on the government of Alberta website.