'Catastrophic' oil prices hurting Alberta, but province to lead GDP growth next year: Ceci
"Alberta will return to the Sept. 2015 peak of employment in 2018," Joe Ceci said, while the province aims to eliminate the deficit by 2023
Geoffrey Morgan, June 29, 2017, 4:14 PM EDT, Financial Post, http://business.financialpost....10-9c62-a228714c316d
CALGARY – The government of Alberta ran up a larger-than-budgeted deficit in the last year, thanks in large part to its decision to turn a previously arms-length agency into a government enterprise.
The province released its annual report Thursday and showed its deficit for the fiscal year ended March 31, 2017 was almost $10.8 billion, in line with recent estimates but up from initial budget estimates of $10.5 billion, as the province collected $42.4 billion in revenues but spent $53.2 billion.
“While Alberta’s economy returns to growth and jobs continue to come back, we recognize this is not yet felt by all Albertans,” Finance Minister Joe Ceci said in a statement.
Alberta’s real GDP contracted 3.5 per cent last year, following a 3.6 contraction the year before, which marks the worst two-year contraction in recorded history in Alberta.
At the same time, the province’s unemployment rate averaged 8.1 per cent as 37,000 net jobs were lost and Alberta’s labour force participation rate, a measure of working-age people either employed or looking for work, dipped to 72.5 per cent – its lowest level since 2001.
“Alberta will return to the Sept. 2015 peak of employment in 2018,” Ceci told reporters, adding Alberta is expected to lead the country in economic growth next year, and expects the deficit to be eliminated by 2023.
Ceci called the oil price collapse “catastrophic” and said the wildfire that burnt much of Fort McMurray and curbed oilsands production compounded an already difficult situation in the province.
As a result, the province collected less in personal and corporate income tax than budgeted though royalties from oil and gas were up sharply from what was expected. The province collected $3 billion in bitumen and other non-renewable resource revenue, compared with a budgeted revenue of $1.3 billion.
But the biggest change between the province’s initial budget figures and the final tally comes from the government’s decision to turn the Balancing Pool, a previously arms-length agency formed in 1998 to manage the electricity market, into a government enterprise.
The Balancing Pool lost over $1.9 billion in the last fiscal year – an amount the province had to subtract from its total revenues for the first time because the government was deemed to be in control of the agency beginning Jan. 1, 2017.
The Balancing Pool has been at the centre of controversy in the province following the NDP government’s decision to reconfigure the electricity market and implement carbon taxes, which led to companies turning the liabilities of money-losing electricity contracts over to the agency.
As a result of those contracts, the province estimates the Balancing Pool will require $2 billion in financing between now and 2020, as projected in the current budget, as the organization is expected to continue losing money on power purchase agreements it controls but has yet to exercise its right to terminate.
Since the Balancing Pool is now deemed to be under government control for financial reporting purposes, those financing requirements would now be added to the provincial government’s borrowing obligations.
Ceci said the Balancing Pool will continue to operate independently, and decisions on terminating contracts would be left with the organization.
A recent tumble in oil prices could further add to the government’s borrowing obligations, as the finance ministry previously forecast West Texas Intermediate benchmark oil prices would average US$55 per barrel over the 2017/2018 fiscal year.
“Obviously, we’re watching that very closely,” Ceci said, adding that the government would not cut social programs even if crude prices trended downward.
After weeks of declines, the WTI benchmark price has climbed in recent days to just under US$45 per barrel on Thursday, far below Alberta’s assumed price of US$55. Government officials indicate an update to oil price assumptions would come soon as a result of the sustained drop.
“Obviously, we’re watching that very closely,” Ceci said of the recent drop in oil prices, but said it’s too early into the fiscal year to estimate whether the low prices will affect the province’s expected budget deficit for the coming year or economic growth for the coming year.