Even small changes to oil prices can mean hundreds of millions of dollars in added revenue for the province, which is what happened over the past year.Jeff McIntosh/The Canadian Press
Alberta’s Finance Minister says it’s possible he could put forward a balanced budget as early as next year, which would mark a dramatic turnaround in a province that has struggled for years with a persistent oil downturn and deep deficits.
Travis Toews said in an interview that the United Conservative Party government will maintain a cautious footing given the uncertainty created by COVID-19 and potential volatility in the oil market.
But the significant turnaround in oil prices in recent months means the prospect of a balanced budget – a key election promise that appeared to have been rendered impossible in the next few years – is suddenly within reach once again.
“It’s certainly not out of the question,” Mr. Toews told The Globe and Mail when asked about the prospect of a balanced budget for 2022-23.
“In order to balance in the upcoming year, it’s going to take reasonably high energy prices to get that done. We’re going to use a realistic but appropriately cautious approach to those assumptions.”
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Alberta suffered from the dual shock of the COVID-19 pandemic and a crash in oil prices in the spring of last year, which only added to the misery of a downturn in the resource sector that began when prices collapsed in 2014.
Mr. Toews made the comments Thursday as DBRS Morningstar changed Alberta’s long-term credit outlook to stable – up from negative – for the first time since 2017, largely on the strength of the oil recovery. The agency’s credit rating for Alberta of AA (low) remained unchanged.
The update from DBRS was the latest in a string of positive economic headlines for Alberta. Last week, RBC Economics released a report that projected Alberta’s economic growth would be among the strongest in the country in coming years.
Mr. Toews released a quarterly fiscal update last week that showed an economic windfall, in large part due to oil and gas royalties that are now projected to be the highest in a decade. Those increased royalty revenues, along with a faster-than-expected rebound for corporate and personal income taxes, allowed the Finance Minister to revise the deficit projection for 2021-22 to $5.8-billion, down from $18.2-billion in his February budget.
The fiscal update projected a deficit of $3.3-billion in 2022-23 and $2.3-billion the following year.
Even small changes to oil prices can mean hundreds of millions of dollars in added revenue for the province, which is what happened over the past year.
The February budget forecast that the West Texas Intermediate benchmark oil price would average US$46 per barrel; the recent update increased that to US$70.50. The higher prices increased non-renewable resource revenues to an estimated $10.9-billion for the current year, compared with less than $3-billion in the initial budget.
The province’s revenue projections assume WTI will sit at about US$64 per barrel in each of the next two years, though the fiscal update also said prices could reach nearly US$80.
Mr. Toews acknowledged that the unpredictability of oil and gas royalties, which are expected to account for nearly 20 per cent of the Alberta’s revenues this year, is a risk to the relatively rosy picture that has emerged recently. He said the province’s focus on diversifying in areas such as tech and petrochemicals will help make things more stable.
“Non-renewable resource revenues make up a significant line item in our revenue structure, no doubt about it – and they’re volatile,” he said.
“So ultimately, creating more stability in Alberta’s revenue structure is a very important goal for the province.”
He also repeated his promise that the government, which has focused on constraining spending to tackle budget deficits, will soon appoint a panel to examine Alberta’s revenues. He said the details are still being worked out, but he expects that will happen before the 2023 provincial election.
Travis Shaw, senior vice-president for public finance at DBRS Morningstar, said the debt and deficit picture in Alberta has improved considerably over the past year, which prompted the change to the agency’s outlook for Alberta to stable.
Mr. Shaw said that from a credit perspective, Alberta is a province that has been under pressure.
“I think there still needs to be recognition that despite all of its challenges and the criticism on Alberta, the debt burden is still relatively low, the tax base is the lowest in the country, and they have a lot of fiscal flexibility to deal with the challenges that they face,” he said.
The RBC Economics report release last week projected that Alberta’s GDP growth in 2021 would be tied with Quebec for the highest in the country, at 5.9 per cent, with the province fully recovering to pre-pandemic levels next year.
Carrie Freestone, an economist with RBC, said the recovery is driven primarily by oil prices, increased drilling activity and increased pipeline capacity.
“Overall, I think Alberta is going to come out of this pretty strong,” she said.
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James Keller