By Liam Verster

Mid-Year Fiscal Update

Alberta’s deficit nearly triples from pre-pandemic levels, economic recovery plans in the works

Nov 24, 2020 | 3:12 PM

Figures from the Alberta Government’s Mid-Year Fiscal Update and Economic Statement shows that Alberta’s deficit has nearly tripled since February to $21.3-billion.

While the deficit increased from the $7.3-billion estimate outlined in the amended Budget 2020, but is actually $2.8-billion less than projected in the first quarter.

The revenue forecast meanwhile was $8.6-billion lower than the estimate in the budget, despite an increase of nearly $3-billion in the first quarter, and is now forecasted at $41.4-billion.

A majority of the rebound to revenue came from federal transfers ($1.4-billion), an improvement on tax revenue, investment income and timber royalties (amounting to $0.7-billion), and resource and gaming revenues ($0.4-billion each).

Meanwhile, total expense forecasts rose $5.4-billion to $62.7-billion, largely in part to COVID-19 and economic stimulus measures, which amounted to $4.3-billion dollars.

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Currently, the deficit is expected to decrease to $15.2-billion in 2021-22, and decrease further to $9.6-billion in 2022-23.

Meanwhile, the net debt-to-GDP ratio is currently estimated at 20.6 per cent, and it’s not expected to drop below pre-pandemic levels until 2022.

Travis Toews, Minister of Finance, President of the Treasury Board and MLA for Grande Prairie-Wapiti, says in order to reach those goals, a new economic recovery plan has to be implemented.

Along with tabling the fiscal update, Toews presented a plan that has three key concepts, which are designed to inform and guide government’s decisions toward economic recovery.

“First we will bring our spending in line with that of other provinces. In it’s report, the Mackinnon Panel concluded that Alberta spends more per capita than comparable provinces without achieving better outcomes,” says Toews.

“We began taking steps towards bringing spending down in 2019, and outside of our pandemic response we have made good progress, but there is more to do. We will evaluate Alberta’s spending levels and outcomes relative to other comparable jurisdictions, and take action to be at least as efficient.”

“Second, we will take measures to keep our debt manageable, by keeping Alberta’s net debt to GDP level below 30 per cent. GDP is a measure of a jurisdictions economic output, and has a strong correlation to a jurisdictions own ability to generate revenues. The ratio indicates a government’s ability to repay it’s current debt. The higher the ration, the greater the burden on the government to repay.”

The third part of the plan involves forgoing the timeline previously set out in Budget 2020 to balance the budget by 2023. Instead, once the worst of the COVID-19 pandemic has passed, Toews says the government will re-assess the situation and come up with a new timeline for balancing the books.

He adds that the budget survey is still available on the government’s website, and that he will be holding telephone townhalls next week to discuss this topic and gather public input.

Meanwhile, Toews says some plans are also in the works to get Albertans back to work, through an increased capital spend.

“We are going to be making further strategic investments in infrastructure projects, projects that will improve our productivity and competitiveness in the long term. In the long term, actually attract the private sector investment and grow our economic capacity in the province. But in the short term they will provide tens of thousands of jobs to Albertans that need an opportunity.”

However, despite this plan, Toews does acknowledge that it’s unlikely that the employment rate will be able to improve to pre-pandemic levels before 2022.

Meanwhile, the report says while the public sector plays a key role in delivering essential service, it does not create jobs or generate growth.

Toews says while those in the public sector provide vital services, and contribute to the province through income taxes, as does every Albertan, “ultimately it’s private sector wealth creation that funds the public service delivery. So to that end, we know that our economic recovery is absolutely critical to our fiscal health in the province.”

He says the province is also continuing work to draw in more investments, and because they are taking a conservative outlook on the energy sector and the recovery of the market, there will be a focus on diversifying the economy.

“The fact that we are the most environmentally responsible energy producer in the world, we know that there’s a solid future, a great future for the Alberta energy industry, That being said, we also believe there is a great future for many other sectors in this province, and I expect that over the next number of months and years that we will see increasing diversification in our economy.”

Toews adds that the government’s economic recovery plan includes sector strategies that will help grow both ‘traditional and new’ sectors in Alberta.

He also adds that, at this time, there is no plan to bring in a provincial sales tax to help mitigate the deficit, instead deciding to focus on reducing spending and delivering efficient government services to help the economy recover.

This mid-year update is essentially an adjusted version of Budget 2020, which captures the current economic status, and in February the Alberta Government will bring forward Budget 2021.