Budgets drained with no money coming out of the ground

As slumping oil prices continue to hammer provincial coffers, the governments of Alberta and Newfoundland and Labrador presented residents with fiscal plans they hope will help their provinces’ weather the oil price storm.

The two budgets could not be more different.

Alberta’s budget is dependent on borrowing for operational costs to ensure essential services like health care and education continue unscathed. Newfoundland’s includes stiff tax increases and deep cuts to provincial services.

Both budgets include significant deficits ($10.4 billion in Alberta, $1.83 billion in Newfoundland and Labrador) as revenues from oil and gas dry up.

In Alberta, resource royalties, which account for one fifth of the provincial revenue, are projected to drop 90 percent this year, to a measly $1.4 billion. Two years ago royalty revenues were closer to $10 billion.

Even the provinces’ agriculture industries, which economists expect will benefit from the falling loonie, did not emerge unscathed.

In Alberta, several agriculture boards including the Alberta Grains Council and the Alberta Livestock and Meat Agency are being dissolved (although ALMA is technically being moved back under Alberta Agriculture and Forestry’s control).

Alberta Agriculture and Forestry’s budget, meanwhile, has been cut by $36 million, including an $8 million cut to ALMA’s budget alone.

ALMA was created as part of the provincial government’s response to the 2003 BSE crisis. It was designed to help the province’s livestock industry innovate. Its 25 employees help to provide funding grants, programming and research support for the province’s livestock sector. It’s unclear how many of those employees will be welcomed into Alberta Agriculture and Forestry’s fold.

The Alberta budget also outlines the government’s promised carbon tax/rebate program. While officials emphasized the economy-wide carbon tax will not apply to purple gas and marked diesel, the current tax plan does not include an agriculture exemption on natural gas or propane.

That differs from British Columbia’s carbon tax, where the government included agriculture exemptions in 2012 after public outcry. (Alberta officials have promised to monitor the situation.)

Meanwhile, in Newfoundland, the province’s agri-food industry will now have to make do without a 10-year old fund meant to help support primary and secondary processors.

The Agriculture and Agrifoods Development Fund will see its provincial funding phased out over the next four years.

Developed in 2006, the province says eliminating the fund will save $1.05 million next year and up to $2.55 million per year once the phase-out is complete.

The Agriculture and Forestry Department as a whole will see $4.4 million in budget cuts next year, thanks to line-by-line reductions and operational cost saving efforts.

New taxes are also coming. While officials in Alberta refuse to implement a sales tax, in Newfoundland residents are now facing a two percentage point HST hike — to a whopping 15 percent. Meanwhile, gas prices at the pump will jump 16.5 cents per litre, while diesel prices will rise by five cents.

Public reaction to both budgets has been mixed. In Alberta, the province’s ongoing plan to borrow to cover operational costs has been met with ire by some who insist more savings could have been found.

DBRS downgraded the province’s credit rating to AA from AAA the day after the budget was tabled. Premier Rachel Notley has insisted that the credit rating shift was expected given the oil situation. Yet, the credit downgrade has not helped garner opposition budget support.

And, in Newfoundland, where rural residents argue the province’s fiscal plan will hit their wallets more than their urban counterparts, many fear the slash and burn budget will only drive people out of the province for good.

Before the oil crash, Fort MacMurray, Alta., was jokingly considered the third largest city in Newfoundland, with high numbers of former Newfoundland residents and direct flights to St. John’s.

As oil prices continue to hover around US$40 a barrel, it’s unclear which province’s fiscal strategy will best prevail.

Yet, one thing is certain: the current oil slump is delivering deep financial blows, leaving governments with little choice but to ride it out as best they can.

About the author


Stories from our other publications