Ballooning deficit may hit $6.5B, Ceci warns
Full impact of oil plunge won’t be seen until fall budget tabled
With spending hikes and the costliest wildfire season on record set to inflate Alberta’s budget deficit to at least $5.9 billion, Finance Minister Joe Ceci warned Monday the recent drop in oil prices will push that number even higher this fall.
“This may not be the final number. The last month has been volatile for the energy sector,” Ceci said as he delivered his first-quarter financial update, adding revenues have continued to shrink as oil prices decline. “If current conditions continue, the final deficit will be in the range of $6.5 billion.”
Because the quarterly update provides a snapshot of the province’s 2015-16 financial outlook from April through June, it doesn’t capture the dramatic drop in oil prices that began in July.
Albertans won’t know the true impact of crashing oil prices until the NDP government tables its first budget after the fall legislature session convenes Oct. 26.
“We’re dealing with a significant revenue shortfall,” Ceci said.
Ministers are looking for places to cut expenses, but the government is considering new revenue streams “where and when we need them,” he said.
“One we won’t consider, of course, is the provincial sales tax.”
The quarterly update shows the province is projecting the price for West Texas Intermediate at $55.85 a barrel — about a dollar higher than estimates in the March Progressive Conservative budget — increasing resource revenue by $710 million to $3.6 billion. But since then prices have tanked, hovering around the $40 to $45 range. Economists expect the situation to get worse before it gets better as the province is hit by a mild recession for the first time since 2009 that will see real GDP shrink by about 0.6 per cent and the unemployment rate hold steady around six per cent.
Ceci used Monday’s update as an opportunity to lay the blame for the state of the province’s finances at the feet of the previous PC government.
“The previous Conservative governments weren’t able to balance Alberta’s budget in five of the last six years, when oil was averaging about $90 a barrel,” he said. “They threw away our opportunity to save and prepare for these challenges.”
Total expenses are expected to swell to $50.2 billion, an increase of $1.8 billion from March projections.
The increased red ink this quarter is mainly the result of a boost to health, education, human services and advanced education spending brought in by Premier Rachel Notley’s NDP government this spring through an interim supply bill.
Disaster assistance spending also jumped by $456 million to $757 million, the result of agricultural losses brought on by drought and a wildfire season that saw 491,000 hectares burn across the province.
The reversal of former premier Jim Prentice’s proposed health-care levy and planned fee increases, along with the reinstatement of the charitable donation tax credit cost the province a further $483 million.
Revenues are expected to jump by $1 billion to $44.3 billion, helped in part by $497 million generated by a new 12-per-cent corporate tax rate that took effect July 1 and a progressive income tax system that comes into force Oct. 1.
About $3 billion will be drawn from the Contingency Fund — the province’s rainy day account — to help offset revenue losses, leaving a balance of about $3.5 billion.
Total debt is expected to hit $18.3 billion this year, an increase of $600 million in capital plan spending from March, including $310 million for school projects.
Despite the negative outlook, Ceci said the province still plans to balance the budget by 2018-19.
Wildrose finance critic Derek Fildebrandt said the New Democrats are steering Alberta “toward one of the worst budgets in our history.”
This year’s tax increases won’t offset the $1.4 billion in new operating expenses brought in by the NDP government, he noted.
“What we needed today was a plan. Instead we got a brochure,” he said.
Interim PC leader Ric McIver said the government’s budget deficit predictions can’t be trusted because it’s forecasting an “unrealistic” oil price.
Interim Liberal leader David Swann called on the government to stimulate the economy by investing in infrastructure, phasing out the small business tax and protecting programs that encourage economic diversification. mibrahim@edmontonjournal.com Twitter.com/mariamdena