Alberta counting on oil and pipeline surge to balance the books: budget
CALGARY – Following spending cuts across the private sector, the Alberta government tabled a budget Thursday that makes deep cuts to the public sector, but that relies on a surge in oil and gas revenues to balance the books in four years.
Alberta Finance Minister Travis Toews said his province has had “a spending problem” as he tabled a budget that included a 2.8 per cent cut to operating expenses over the next four years and a 7.7 per cent reduction in the size of the public service in the same period. Next year, the province expects to cut 764 jobs.
Toews said the cuts are necessary to reach a balanced budget in 2022-2023. The budget also accounts for a reduction in corporate income taxes in the province to eight per cent from 12 per cent over the next four years.
“When hard-working Albertans see their incomes shrink and struggle to make ends meet, they have to face their fiscal realities — and so do governments,” the budget reads.
However, Alberta is also forecasting a 30-per-cent jump in non-renewable resource revenues in order to move from an $8.7 billion deficit this year to a surplus in four years. The province expects to pull in an extra $1.4 billion in revenues from the oilsands and an increase of $615 million in other resource revenues between now and 2022-2023 — accounting for the expected $1.8-billion budget surplus that year.
Toews said the expectations of higher non-renewable resource revenues were based on a cautious outlook for oil and gas prices and new pipelines. “This is not a boom-time scenario. This is a very cautious revenue projection,” he said.
If no new pipelines are built, the province expects its revenues will drop by $3 billion, an amount that demonstrates how the fate of the province’s finances are tied to the success of TC Energy Corp.’s Keystone XL pipeline to the U.S. Gulf Coast, Trans Mountain Corp.’s pipeline expansion project to the West Coast and Enbridge Inc.’s Line 3 replacement to the U.S. Midwest.
Alberta endured a brutal recession that began in 2014 when global oil prices collapsed, and its recovery has been slowed by a lack of new pipelines, which has thwarted the growth of its main industry and resulted in continued job losses, including at Calgary-based Husky Energy Inc. this week.
This is not a boom-time scenario. This is a very cautious revenue projection
Alberta Finance Minister Travis Toews
The province is projecting its GDP will finally reach pre-recession levels of $396.6 billion in 2020, but its unemployment rate will not return to pre-recession levels until 2022-2023, when it will fall to 5.2 per cent. The province’s unemployment rate is expected to average 6.7 per cent this year.
The downturn also resulted in a dramatic drop in non-renewable resource revenue with the province posting a string of deficits in recent years that will continue with an $8.7-billion deficit this year.
This year’s deficit is partially inflated by a $1.5-billion expense incurred by selling off contracts the previous government under then-premier Rachel Notley had signed to ship 120,000 barrels of oil per day out of Alberta on railway cars.
“This is something that is fundamentally important to the return that all Albertans get for our energy resources,” Notley said in February when her government signed the three-year contracts to lease 4,000 rail cars from Canadian Pacific Railway and Canadian National Railway.
But the provincial government is now saying those contracts will lose $1.8 billion and they want to sell them to the private sector. “The business case carried a number of risks and assumptions never adequately disclosed to Albertans,” the budget said.
(The railcar purchase) business case carried a number of risks and assumptions never adequately disclosed to Albertans
Alberta 2019 budget
The railway cars cost $3.7 billion and the plan to purchase oil from companies in Alberta will cost $6.8 billion. Both costs would swamp the estimated $8.7 billion in revenues the province expected to make by selling the oil.
“That’s if everything went very, very well,” Toews said, adding that he believed the plan to buy oil, ship it out of the province and sell it abroad posed too much risk to the government and taxpayers.
Major oilsands producers such as Canadian Natural Resources Ltd. and Cenovus Energy Inc. have signalled their interest in buying the rail capacity.
“We will be negotiating hard,” Toews said of the imminent deal to sell the crude-by-rail contracts. He also dismissed the suggestion that Alberta had weakened its negotiating position by disclosing how much of a loss it was willing to accept to sell the contracts.
“There is a real possibility it comes in lower,” Toews said of the $1.5 billion provision.
“What we saw today is Premier Kenney’s plan to make you pay more and get less,” NDP Leader Rachel Notley said.
NDP House Speaker Deron Bilous commented that “that was a whopper” after the budget was tabled in Legislature, adding the bill would be subject to much debate in the coming weeks.
Indeed, affected public sector workers were already planning to protest the budget Thursday afternoon.
The Alberta Union of Provincial Employees planned rallies in both Calgary and Edmonton on Thursday when the budget was released. “When they say ‘cut back,’ we say ‘fight back!” the union said in social media posts.