Finance minister touts lower-than-forecast deficit but warns of continued oil export woes in 2019
Despite lagging oil prices, Alberta’s deficit is down and the province is still on track to balance the budget by 2024.
That was the message from Finance Minister Joe Ceci, who tabled the province’s Q3 financial update Wednesday. Ceci says the 2018-19 deficit is now forecast at $6.9 billion, down from the $8.8 billion projected in last spring’s budget. The NDP has reduced the provincial deficit by nearly $4 billion since its 2016-17 high of almost $11 billion.
“The deficit is down and the path to balance is on track,” Ceci said. “Alberta has the strongest balance sheet in the country, and that will not change. But there is more work to do.”
Despite the punishing oil price differential, the province is still forecasting higher than projected bitumen and crude royalties in 2018-19. Annual royalties are projected to be up by $1.6 billion and $118 million compared to the spring budget, respectively, thanks to “robust” oil revenues in the first half of the year.
Ceci warned of slower growth in 2019 thanks to the ongoing oil production curtailments, but said he expects a turnaround in the latter half of the year. While Budget 2018 crystal balled 2.5 per cent GDP growth in 2019, Ceci has revised his growth forecast to 1.6 per cent.
A new report from the Conference Board of Canada forecasts Alberta’s 2019 GDP growth at 1.3 per cent.
The finance ministry’s deficit elimination plan does not assume full pipeline access and recognizes shipping by rail will not be fully implemented until 2022. It also does not assume the federal government’s schedule to increase the carbon price to $50 per tonne by 2022.
“We’re prudent on our differential forecast; we’re prudent on our assumptions on full market access; and we’ve been prudent on our revenue projections,” Ceci said.
However, with oil prices expected to drop from an average of $64.01 USD per barrel during the first 10 months of the fiscal year to $52.26 USD per barrel in February and March, the impact of the differential will continue to be felt.
“They’re absolutely in the lower-for-longer frame,” Ceci said.
Natural gas royalties are expected to be $95 million less than projected in the spring budget, down from $541 million to $446 million, mainly due to lower natural gas prices.
The province is spending $132 million less on its Climate Leadership Plan. The plan’s operating expenses are now projected at $903 million, rather than the $1.04 billion projected in the budget.
Operating expenses are up by $228 million, which the government says reflects the cost of its Trans Mountain pipeline advocacy, the Lubicon Lake First Nation settlement and caseload growth in social programs.
Overall operating spending growth is forecast to track below population growth and inflation.
“We’re on a path to balance, and we’re doing a great job of getting there without blowing up programs and services and hospitals and those things that previous governments did to get to balance,” Ceci said.
The NDP’s inclusion of a “path to balance” in the update is more typical of a spring budget than a quarterly report. Asked by reporters if a spring budget was part of the NDP’s pre-election plan, Ceci would not say.
“You’ll have to ask the premier about all of that. I’m preparing the budget, of course,” Ceci told reporters. “There will be a Budget 2019, I can assure you. It will either be before the writ drop or after.”
Opposition says NDP fiscal forecast is “out of touch”
UCP finance critic Drew Barnes said the NDP’s spending plans are out of touch with the reality facing Alberta families.
“Today’s third-quarter fiscal update does nothing to inspire confidence from Albertans in a
free-spending NDP government that is burying Albertans in a sea of red ink,” Barnes told reporters at a news conference responding to the update on Tuesday.
Barnes also disputed the government’s path to balance numbers.
“The NDP’s supposed plan still puts Albertans on track to nearly $100 billion in debt by 2023,” Barnes said.
(The province’s debt is currently estimated at $28.1 billion, but the spring budget projected it to grow to $96 billion by 2023. Debt servicing costs were down $48 million in the third quarter but are still costing the province nearly $1 billion per year.)
Alberta Party finance critic Greg Clark said the NDP government is “using the power of their imagination” to magically predict a balanced budget in 2023-24.
“The update on that plan they provided today, an overtly political pamphlet tacked on to the actual Q3 numbers, confirms how unrealistic it is,” Clark said, referencing the fiscal update’s use of NDP campaign catchphrases such as “the recovery isn’t being felt at every kitchen table.”
Alberta Liberal Party Leader David Khan called the significant drop in the province’s GDP growth forecast “gloomy.”