Well I lay my head on the railroad track – Waiting on the Double E
But the train don’t run by here no more – Poor poor pitiful me. Warren Zevon
The pandemic economic shock to the Canadian economy has been traumatic. Canada’s and Alberta’s fiscal plans are in the ditch.
Previously, the Liberal government was comfortable running up debt to finance expanding programs. The Alberta government’s focus was on cost cutting and corporate tax reduction to stimulate economic growth.
The pandemic changed all that. Shuttering the economy meant governments were forced to take on debt to replace some of the lost income for families and companies. To do otherwise would lead to a depression.
The federal government’s recent economic ‘snapshot’ describes a deficit 10 times greater than originally forecast (from $34 billion to $343 billion). Put another way, that is nearly $10,000 per capita. The bulk of this is for ($212 billion) support for businesses and individuals. Net federal debt will hit $1.2 trillion. The debt-to-GDP ratio will rise from 30% to 50% of annual GDP.
In Alberta, an August economic ‘statement’ pegged the provincial deficit at $24 billion; triple the pre-pandemic estimate. Revenue dropped by 23% ($11.5 billion). Alberta’s accumulated debt has reached the much-feared milestone of $100 billion.
If the fiscal carnage is bad, the overall economic train wreck is breathtaking. Canada’s GDP is forecast to fall 8.2% (and in Alberta 8.8%) in 2020.
While a recovery is underway, Canada has 1.3 million fewer jobs now than in February. The Canadian Federation Independent Business says about 62% of small businesses are fully open. Only 37% are fully staffed; while 26% are making normal sales.
Canada’s main economic indicators all show a dramatic downward spike: employment, wages, sales, travel, tourism, stocks, business and economic activity.
Alberta will take a very hard hit!
The Conference Board of Canada says that “provinces dependent on the energy sector—notably, Alberta, Saskatchewan, and Newfoundland and Labrador—have been hit especially hard by the double whammy of collapsing oil prices and the economic shutdown due to the virus.”
Calgary has the dubious distinction of having the highest unemployment rate of any city in Canada. Alberta’s official unemployment rate is 8.8% but factoring part-time hours and lower participation rates the effective rate is 10% higher.
So, Now What?
Governments are exploring how to help the economy recover. The Alberta plan has a wide range of initiatives. It includes a $1.5 billion investment in a pipeline to the US Gulf coast and $500 million to subsidize emission reduction projects. The next big bet is that lower corporate taxes will attract a wide range of companies. There are initiatives to accelerate selected provincial and municipal infrastructure.
The Kenney government’s plan to diversify the economic base includes removing Lougheed era restrictions on coal development and stimulating petrochemical projects. It established a new agency to attract investment. It reduced regulations in hopes of stimulating private sector activity. There is a trickle of new money for agriculture, high technology companies, and tourism.
The provincial government’s strategy is stuck. Philosophically, tax, royalty and regulatory reductions are acceptable. But major business incentives are not palatable, except perhaps to protect the energy industry. Moreover, the province doesn’t have much fiscal room to launch new programs.
Thus, severely normal Albertans must cross their fingers and hope for a rise in energy prices, and a quick resolution to the pandemic, so that companies will invest and create jobs in Alberta’s low-cost business climate.
The feds have been signalling a strategy connected to the idea of “build back better”. The Prime Minister foreshadows the plan by saying: “We are going to rebuild the Canadian economy in a way that was better than before.” The new Finance Minister is on board. Freeland says; “The restart of our economy needs to be green,” “It also needs to be equitable; it needs to be inclusive”. Liberal insiders are signalling that all this will be expensive, and more debt will be incurred. Currently, interest payments on the existing federal debt is $24 billion annually. The Prime Minister has not identified a plan to get to balanced budgets.
Severely normal Albertans can rightly worry that if a goal is ‘decarbonization’, a continuing assault on the energy industry is in the cards.