I have to admit that I was wrong. I never thought Alberta would get out of its fiscal mess so quickly.
In 2017, as in 2019 and 2021, I wrote that the situation in Alberta was catastrophic. “You have to call a spade a spade: Alberta is going through a major budget crisis that won’t be resolved any time soon,” I said in 2017.
But this year (2022-2023), Alberta is heading towards a record surplus of $12.3 billion, according to the recent mid-year update. The turnaround is dramatic compared to the pre-pandemic deficit of 12.2 billion (2019-2020). wow!
The surplus is such that Alberta now has the best budgetary situation of the 10 provinces, whereas it had the worst 3 years ago. Quebec, meanwhile, is much more stable, going from a surplus of 2.1 billion to a deficit of 1.5 billion over the same period (before the payment to the Generations Fund, to make things comparable).
A comparison of budget balances per capita helps to better understand the turnaround. Three years ago, Alberta had a deficit equivalent to $2,800 per capita, compared to a surplus of $247 in Quebec. Today, Alberta’s surplus is equivalent to $2,700 per capita, compared to a deficit of $172 in Quebec.
What happened ? Essentially, Albertans’ financial lives have fluctuated with the price of fossil fuels, from which they derive large royalties.
The price per barrel of WTI oil fell from US$107 in 2014 to less than US$60 between 2015 and 2017, eroding Alberta’s prosperity.
Prices recovered in 2018 and 2019, even reaching US$74 per barrel in October 2018, but crashed again in 2020 with the pandemic lockdown and the sharp decrease in car traffic.
With mass vaccination and the return to some normality, in the spring of 2021 the price of oil recovered, before exploding with the war in Ukraine, often crossing the threshold of US$100 per barrel between March and May 2022.
Resource revenues moved in the same direction as prices. Imagine, this year, these revenues will reach 28.1 billion, forecasts the Alberta government, compared to less than 5 billion between 2015 and 2021. The gap is staggering.
We must give Caesar what is due to him, all the same. The Alberta government has managed to freeze its spending for the past two years, something it plans to continue to do over the next two years. This is no small matter when you consider that the costs of the system – notably the salaries of state employees – are constantly increasing, usually with inflation.
The fact remains that Alberta’s finances are very closely linked to the vagaries of fossil fuels.
This link poses a serious political problem. Albertans get angry with the rest of Canada – and especially Quebec – as soon as the windfall dries up. And they are radicalizing.
For the past seven years, they have dismissed the NDP, voted for the federal government to abolish equalization, passed a law for the sovereignty of Alberta and put at the head of the province a premier – Danielle Smith – who espouses conspiracy theories.
With revenues rising sharply, the anger could subside. But this appeasement will not last so long.
On the one hand, the price of a barrel of WTI oil has again fallen below US$80 in recent days. And within 10-15 years, the pressure will be very strong to abandon fossil fuels. It’s hard to imagine Albertans happy to give up the main source of their income, which allows them to afford good utilities, big SUVs and plush homes.
In 2019, I compared Albertans to the cicada in La Fontaine’s fable. “They lived richly imagining that the prices obtained for their non-renewable resources would be eternally high. They developed the oil fields without ensuring that they would have pipes to deliver the liquid to customers. And they stopped setting aside funds in their Heritage Fund to insure against possible darker days. »
With price uncertainty, Albertans would do well to take more inspiration from the ant than the grasshopper in the coming years. And to stop blaming others for their problems.
But who knows, it is very difficult to bet against the markets, as I have seen.