Alberta resource revenue plunges to historic low

Alberta has been through booms and busts before, but the scale of the current slide in oilandgasrevenues is on a level that no government has seen in modern history.

Total revenues from non-renewable resourcesare expected to ring in just shyof $2.5 billion in the current fiscal year, which ends on March 31.

That will representa mere 5.7 per cent of the province's total revenue for the year by far the lowest on record.

The lowest take, previously, was14.1 per cent in 1998-99, according to historical data fromAlberta Energy.

Since 1981, the province has received about26per cent of its annual revenue, on average,from non-renewable resources.In three of those years,it peaked above 40 per cent.

So what does it mean for Alberta when royalties plunge to the depths they're at now?

"It's a real challenge for the future,"saidJanicePlumstead, a senior economist with the Canada West Foundation.

"Everything ispointing to, in the global market, that the price of oil is not going to increase appreciably in 2016. And I believe, with the inventory and supply that's available, that it might even take into 2017 until prices begin to rise again and that supply is actually taken up."

"So we could be looking at a really challenging budget period for Alberta for at least the next two years."

What to do?

The province shares Plumstead's outlook on oil revenues, with Finance Minister Joe Ceciforecasting no significant rebound in 2016-17 and warning the deficit in the upcoming fiscal year could easily top an eye-popping $10 billion.

Faced with a budget gap of that magnitude, "there's no easy fix"for Alberta,according toTrevorTombe,an economist at the University of Calgary.

"There's no conceivable way I can think of for the deficit to be eliminated through spending cuts alone or revenue increases alone," he said.

To put the $10-billion figure in perspective, consider the inconceivable cuts that would have to be made to trim that much spending from the province's operatingbudget.

Cutting Alberta Health's budget in halfwould only get you $9.2 billion.

EliminatingAlberta Education altogether would only save $7.3 billion.

KillAdvanced Education, Agriculture and Forestry, Culture and Tourism, Environment and Parksand Municipal Affairs? That's just $7.2 billion, in total.

The dreaded T-word

On the other side of the coin, raising taxes could help bring more revenue into provincial coffers, and there has been plenty of discussion about the prospect ofestablishing a sales tax in the only province that doesn't have one.

Creating a provincial sales tax (PST) or harmonized sales tax (HST) in Alberta has the support of some experts, includingformer finance minister Ted Morton, but iswildly unpopular in publicopinion polls.

Given the scale of the budget shortfall, Tombe believes a tax increaseon its ownwould be an "inadvisable" solution.

"If you want to raise $10 billion from an HST, you're talking about a 10percent HST," he said."That's a lot, and that would be a lot to do all of a sudden."

Barring a sudden return to $80 oil, Tombe said the only realistic way to bring Alberta's books back into the black is a "sustained but large change" in both government revenue and spending.

"And so, it would need sustained political will."

Long-term discipline

Consistency in fiscal policy may be a laudable goal, but Plumstead notes it's something that "appears to be lacking in the history of Alberta's budgeting."

"We've had a lot of different types of fiscal rules in the past and nobody seems to really follow them," she said.

"They keep changing them when the environment changes."

The pattern has been to make drastic cuts during busts, followed by rampant spending increases when times turn good again, and Plumstead said that's understandable, to an extent, for decisions made by politicians facing four-year election cycles.

Establishing some kind of longer-term financial planning and sticking with it would require extraordinary action, likely with "all-party support."

"This is actually an important piece where the public can become involved," Plumstead said. "But how do you engage the public to understand that there needs to be some type of fiscal discipline, longterm, for the province to actually function really well?"

"It's a very challenging agenda. But the alternative is just to continue going through these spikes."

Independent advice

One way forward for the current NDP government, inTombe's view, is to follow the same approach it has already taken with two other thorny issues: carbon-pricingpolicyand the latestroyalty review.

"These are big, controversial areas that the government got through in a pretty good way," he said. "And they did that by appointing these credible, strong, independent panels and just letting them go off and do their work. They might consider the same thing for the budget."

It's an approach British Columbia is employing, announcing as part of its most recent budget the creation of a"tax competitiveness commission"to consult with citizens and businesses and make recommendations on changes to the province's salestax policy.

"We could do a similar thing here, where we appoint some really strong people and try to get some advice," Tombe said.

"It might get the buy-in the government needs. But I'm not sure. Politics is a weird thing."