Alberta Premier Jason Kenney says his government will not rewrite its budget in the wake of a global oil and gas price crash he called a “profound challenge for Alberta and for Canada.”
In a news conference Monday, the premier addressed the historic dip and how it will impact a province that just put forward a budget dependent on optimistic oil price projections.
“We are in uncharted territory,” Kenney said. “We cannot predict how deeply or for how long this devastating price collapse will affect us.”
Oil prices plunged over the weekend after economic uncertainty around the coronavirus caused demand to drop, and a dispute with Russia prompted Saudi Arabia to flood the market with low-cost oil, cutting prices by the largest amount in decades. Standard prices for oil dropped by almost 50 per cent over the weekend.
“This could hardly come at a worse time,” Kenney said.
The crash comes less than two weeks after Kenney’s United Conservative government put forward a provincial budget projecting increased oil prices, and with them increased royalties and revenue for the province on route to a balanced budget by 2022-23.
The oil price crash puts that goal in serious jeopardy.
Why is Alberta freaking out?
The province just staked a huge part of its economic future on optimistic projections for the price of oil and gas.
“We cannot predict how deeply or for how long this devastating price collapse will affect us.”
No matter how you slice it, Alberta’s budget projections for the next four years were largely dependent on anticipated royalties from oil and gas. In fact, 15 per cent of the province’s revenue was projected to come from oil and gas royalties and other income streams, up 10 per cent from previous budgets.
Those anticipated royalties not only require the price of oil stay the same over the next four years, but actually increase.
The budget forecasted the oil benchmark West Texas Intermediate to average US$58 a barrel in the upcoming year. When the budget was released on Feb. 27, the price hovering at about $50. At the time, Finance Minister Travis Toews called those projections “credible but cautious.”
WATCH: Alberta government files red-ink budget. Story continues below.
But with this weekend’s crash, the benchmark price for U.S. crude oil fell to around US$32 a barrel. And every dollar decline in the market price of oil takes about $350 million from Alberta, according to experts.
According to the 2020 budget, 15 per cent of Alberta’s revenue is staked in the price of oil, up from 10 per cent previously. So, big stakes plus a big crash, mean a big problem for the government.
Following the release of the budget, University of Calgary economist Trevor Tombe told HuffPost Canada that the government’s projections were even more optimistic than most market forecasts.
“If oil prices evolve as current market conditions project them to be, then we’re looking at a deficit in 2022 on the order of about $3 billion, rather than the surplus the government is projecting. So this budget rests entirely on optimistic price projections for oil,” Tombe said.
So, is it time for a new budget?
That’s what NDP and opposition leader Rachel Notley wants.
On Monday, Notley called for the government to re-do the budget, describing its projected numbers as “irresponsibly optimistic.”
“The budget is absolutely meaningless,” she told reporters.
However, Kenney said his government will attempt to pass the budget it put forward, despite tanking oil prices.
“The budget is absolutely meaningless.”
He argued that with the fiscal year ending in three weeks, the government does not have time to adequately put together a sufficient new budget.
“It is too early to know or to predict the impact on our budget as a result of the global oil price collapse,” he said. “We expect that the forthcoming federal budget will have some positive impact on our fiscal situation.”
Both Kenney and Notley called on the federal government to intervene with some sort of aid or stimulus. Kenney will be travelling to Ottawa later this week to meet with federal officials.
So, what happens now?
Kenney will specifically be asking the federal government for job-creating investment in the province.
“We’re not asking for a handout, we’re not asking for any special favours,” he said. “Albertans have been good to the rest of Canada. It’s time to see the rest of Canada return the favour.”
Kenney also doubled-down on the province’s future in oil and gas, arguing that limited U.S. production in the wake of the price crash could lead to an Albertan advantage if things eventually turn around.
The provincial government is in the process of appointing an advisory council on how to deal with the crisis on a policy level. It will be chaired by University of Calgary School of Public Policy professor Jack Mintz. Kenney said all options are on the table.
“The government of Alberta will do everything within its power to protect people from the effects of this price collapse,” he said.
Experts like Tombe have long advocated for a provincial sales tax in Alberta, the only province without some form of one. Tombe said if Alberta were to adopt the same taxation system as Ontario, its reliance on fluctuating oil prices would essentially be erased.
But Kenney said, despite considering “all options,” his government will not consider a sales tax, saying he “couldn’t imagine a dumber thing to do.”
“What we need now is fiscal stimulus. Not fiscal suppression of economic growth and disposable income,” he said.
WATCH: Global stocks tumble on oil price shock.