The first-quarter fiscal update to be released Thursday will forecast the largest deficit in Alberta history.
The update, to be tabled during a special one-day sitting of the legislature, covers the period from April to June, when prices for Alberta oil dropped into negative values and the government spent billions in an attempt to mitigate the impact of the COVID-19 shutdown.
Premier Jason Kenney warned earlier this week the deficit would be record-breaking.
The 2020-21 budget, released in February, projected the deficit would reach $6.8 billion by the end of the fiscal year. Kenney said that number is now forecast to be “well north” of $20 billion.
“This is going to be the biggest deficit in the history of Alberta by a country mile,” he told reporters at a news conference on Tuesday.
“There is a great fiscal reckoning on the horizon,” the premier said. “Our debt will go up very significantly, and in the future we will, as a province, have to deal with that.”
The significance of the fiscal update is heightened by the way it will be released. Usually quarterly updates are presented by the minister during a news conference.
This update will be released much like a budget, with the legislature convening for a one-day sitting.
Toews will present the update starting at 10 a.m.
Following his speech, an opposition NDP member will be given 10 minutes to respond. MLAs from both sides of the aisle will have the chance to question Toews and other cabinet members about the update. The process is scheduled to take two hours.
While the deficit in Thursday’s update may be the largest in Alberta history, the revenue side of the ledger is expected to tell a more troubling story.
On Tuesday, Kenney said the province’s revenues dropped by more than $10 billion in the first quarter, mainly due to flagging prices in the energy sector.
While the situation has improved since April, oil prices are nowhere near the benchmark $58 US price for a barrel of West Texas Intermediate forecast in the February budget. According to Alberta Finance, the average WTI price in July was $40.71 US.
Trevor Tombe, associate professor of economics at the University of Calgary, said he wants to see how the government plans to fill that fiscal hole.
“If they don’t present a plan then that’s going to be a really big missed opportunity,” Tombe said.
“We need to have a conversation started earlier around where we go from here, how do we overcome this fiscal challenge, what are we going to do on the revenue side of the budget, which has been missing in that conversation to date.”
Kenney’s government has so far been reluctant to deal with the revenue side of the equation, preferring to focus on spending restraints.
The government has cut corporate taxes in a bid to encourage business growth in the province, a measure the Opposition NDP say cuts into the province’s revenue streams.
The government is opposed to a provincial sales tax, and Tombe said he doubts that will be on the table.
Other revenue sources include increases in gasoline, alcohol and cigarette taxes, or even health-care levies.
While the size of the deficit may make headlines on Thursday, Alberta is facing the same situation as many governments around the world trying to deal with the impact of the pandemic.
A deficit of $20 billion works out to about seven or eight per cent of Alberta’s GDP. The largest previous deficit was in 1986, when the deficit equalled 6.8 per cent of the province’s GDP, Tombe said.
Borrowing to get the province through the pandemic is the correct course of action for the short-term, he said.
“Alberta has a strong balance sheet and very low borrowing rates,” Tombe said. “So it is appropriate for us to be borrowing right now during a crisis situation like this.
“What we need to confront and have a conversation about though is, what do we do next year and the year after?”