Alberta budget deficit hits $24.2 billion as revenues plunge, but government resists tax hikes
CALGARY – Alberta’s deficit will be $16.8 billion higher than forecast this year as a result of the coronavirus pandemic’s knock on oil prices and the province’s inability to offload its crude-by-rail contracts.
“Nearly all of government’s revenue streams have been negatively impacted by the COVID-19 pandemic and the global oil price crash, with total revenue forecast to be $38.4 billion, $11.5 billion lower than estimated,” Alberta Finance Minister Travis Toews said in the province’s Legislature on Thursday.
Oil and gas revenues will be particularly hard hit in Alberta. Canada’s largest oil producing province had budgeted for $5 billion in non-renewable resource revenues this year but is now forecasting a 76 per cent drop in those revenues to just $1.2 billion.
Asked during a press conference whether or not the province should look at additional taxes to increase its revenues, Toews said the province was focused on reducing costs and “delivering efficient government.”
“This is not the time to talk about raising taxes,” Toews said.
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The province’s deficit for the year is now expected to be $24.2 billion — or $16.8 billion higher than previous estimates.
In addition to a sharp drop in revenues, ballooning costs from a program to ship oil out of the province on railway cars has also driven up the province’s largest ever deficit.
The province had announced in February that it would book a $1.3-billion loss as it moved to sell contracts to move 120,000 barrels of oil per day on rail cars out of the province. However, as the coronavirus pandemic hit, the Alberta government was not able to fully transfer those contracts to the private sector.
The result is an additional $800 million in costs from those contracts. On Thursday, the government booked a $2.1-billion loss from its crude-by-rail contracts.
“This was exactly the type of scenario that made the contract unfortunate and a big gamble for the Alberta taxpayers,” Alberta Energy Minister Sonya Savage said, adding the estimated cost of fully running the program through the COVID-19 pandemic would have been between $2.3 billion and $2.7 billion.
“We’re still saving a significant amount of money,” she said.
The crude-by-rail contracts were signed by the previous government under premier Rachel Notley, who was motivated to find additional routes to move oil out of the province at a time when Canadian heavy oil was trading at a large discount to U.S. crude and when Canadian pipeline projects had been delayed.
Contracts were signed to move 120,000 bpd out of Alberta from crude-by-rail loading stations at Hardisty, Bruderheim and Lashburn. Savage confirmed the province had been able to completely divest contracts totalling 50,000 bpd of the province’s commitment but was unable to fully assign 70,000 bpd to the private sector.
She said the reason the assignments were not successful for those 70,000 bpd was the counterparties would not let the province “off the hook” for its financial commitments in a pandemic.
“The rail storage said ‘we’re not letting you off the hook in these circumstances.’ If you’re assigning it to a third party, we’re not going to release you from your obligations,” Savage said.
Financial Post
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