Fiscal Outlook Brightens
The first quarter fiscal and economic update was released on 31 August. Alberta’s projected deficit for fiscal 2021-22 has brightened considerably due to bitumen revenue (+$5.6 billion) and stronger investment revenue (+$1.1 billion). The government’s message was “Alberta’s Recovery Plan is working.”
The main drivers for the improved performance were revenue although spending is now expected to increase by $567-million driven by health care (+$400-million), drought relief (+$400 million) and agriculture support (+$340-million) some offset by the confusing practice of using contingency and unallocated numbers. Lower debt servicing costs were assisted by low interest rates and the significant decrease in projected borrowing as a result of the improved deficit number.
During Minister Toews’ press conference, he emphasized the province cannot simply rely on resource revenue because the oil and gas sector is so volatile.
He urged caution because of the uncertainty in the weeks and months ahead from both the highly infectious COVID Delta variant and the unpredictable oil markets. He reiterated the key messages that investment was returning and the economic recovery program would rely on getting per capita expenses down to levels of comparable provinces and ensuring Alberta was the most competitive jurisdiction to attract investment.
The media kept asking Toews about the impact of the fourth wave of COVID on the fiscal forecast noting the public absence of key government players (Kenney, Shandro, and Hinshaw). Toews stated a fourth wave of COVID was factored into the update reiterating the government was being cautious and prudent. He skillfully avoided the question of the absentee premier and health minister by referring to the daily tweets of the Chief Medical Officer of Health, adding a vaccine passport was a” non-starter.”
Analysis
The “booming” oilpatch however presents a problem for the finance minister. On the one hand, there will be pressure from public sector institutions and unions to stop the spending cuts given rising revenue. On the other hand, it will also embolden fiscal hawks in the UCP caucus to declare there is no revenue problem. Still with a projected deficit of $7.8-billion premised on realized and unrealized gains from investment portfolios, oil prices factored at $65.50 for the remainder of the year, and a tenuous economic recovery, the champagne flutes should be kept in reserve. These aforementioned sources of revenue are the most volatile in the government stable of revenue instruments. Without a sales tax to contribute stable additional revenue to the Alberta treasury, this recent windfall may unfortunately forestall any honest political debate about the volatility of Alberta’s revenue.
Opinion
Another issue facing the UCP government in attracting investment is its erratic guidance of public health measures over the past 18-months.
Business investors require stable oversight of the economy not some quixotic policy mix of tax holidays, eroding public services, and the prospect of public sector strikes- policies which exacerbate the boom-bust cycle and foster societal polarization. Alberta businesses bearing the brunt of this on-again, off-again reopening of the economy now realize that it is the “spendthrift” federal government that actually has Alberta businesses’ backs, not the UCP. After all, it’s not all about the economy is it? People do matter.