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Aside from some awkward questions about pandemic response and the premier’s whereabouts, it was probably a rather enjoyable news conference last week for Alberta Finance Minister Travis Toews.
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It’s been a while since an Alberta finance minister has had any good news to announce, and so I’m sure Toews was eager to step to that podium to announce the first quarter fiscal update.
Context is important here, of course. In more normal times, a projected deficit of $7.8 billion would not be something that a self-respecting right-of-centre government would be proud of. As it is, the projected deficit for 2021-22 fits right in between the deficits of 2018-19 ($6.7 billion) and 2019-2020 ($12.2 billion). It would also represent the smallest deficit delivered so far by this UCP government, although they did get thrown a pretty big curve ball a year and a half ago.
Given where things stood earlier this year, though, the first quarter update represents quite a dramatic turnaround. That projected $7.8 billion deficit is more than $10 billion lower than what was forecast in the budget. When you factor in an upwardly revised economic growth forecast of 6.7 per cent for 2021, it was — all things considered — a pretty good day at the office for the finance minister.
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But beneath it all lurks an uncomfortable reminder for Alberta: we continue to be at the mercy of volatile outside forces. For as much as the government would like to tout the success of its recovery plan (the jury is probably still out on that), it’s really just more thrills and chills from the royalty revenue roller-coaster.
That roller-coaster has produced some pretty big ups and downs through this pandemic. We went from oil prices in negative territory last year to a situation now where the spring budget significantly underestimated the price of oil (by about $20.)
The revenue gusher certainly comes at a welcome time for the province, and comes as some consolation for Albertans angry and frustrated with the prices at the gas pump.
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The celebration really ought to be short lived. We still face some considerable financial challenges as a province, and that includes the rather immense challenge of reducing and eventually ending our dependency on this revenue roller-coaster.
In fairness, the government is aware of this. As the quarterly update report notes, this sudden upswing and the volatility it represents highlights “the need for economic diversification and for caution in fiscal planning.”
There’s a reason why Alberta has found itself in the odd position of being at the high end of provincial per capita spending and the low end of provincial tax burdens. These kinds of revenue gushers make it easy for governments to have their cake and eat it, too. But when that money becomes spoken for and is then suddenly not there, we end up with some hefty deficits.
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This doesn’t seem like a government inclined to go on some sort of new spending spree and they are cognizant of the rising debt that these deficits still represent — as the annual interest costs that come with that ($2.6 billion at present).
Furthermore, the UCP is still committed to overhauling how, and how much, money is spent each year by government, although the timing of that push has been thrown off by the need to respond to the pandemic.
Even still, there’s no end in sight to the budget’s reliance on royalty revenues. The only certainty when it comes to that revenue stream is future uncertainty.
Ultimately that revenue should go into the Heritage Fund or some sort of sustainability fund. Perhaps there’s still some interest or dividend that can be drawn upon, but there’s too much budgetary chaos under Alberta’s status quo.
Spending should match revenue, which will almost certainly mean some tough decisions on both sides of that ledger. Now may not be the time for that, but last week was a reminder that we’re really just hitting the snooze button.
“Afternoons with Rob Breakenridge” airs weekdays 12:30-3pm on 770 CHQR rob.breakenridge@corusent.com Twitter: @RobBreakenridge
Breakenridge: Alberta's economy continues to be at the mercy of volatile outside forces - Calgary Herald
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