Alberta is facing its most severe fiscal challenge since the pandemic, as a potential surge of Venezuelan oil threatens to depress prices for the province’s heavy crude, a major revenue source. Following US President Donald Trump’s Jan. 6 statement that Venezuela could release up to 50 million barrels after US forces captured President Nicolás Maduro, Western Canadian Select prices fell, widening the discount to nearly $15 a barrel.
Analysts predict Alberta’s fiscal year deficit could reach C$10–11.6 billion, the largest outside the pandemic years, reports Robert Tuttle of Bloomberg. While oil and gas revenues remain volatile, Alberta’s low taxes, no sales tax, and strong debt position give it greater fiscal capacity than other provinces, though tighter spending or higher revenue may be needed to stabilize finances. Tuttle writes:
Alberta is facing its toughest fiscal situation since the pandemic as a possible flood of Venezuelan oil depresses the price of heavy crude, one of the Canadian province’s largest sources of revenue.
US President Donald Trump said on Jan. 6 that Venezuela would release as many as 50 million barrels of oil after US forces captured President Nicolas Maduro. Venezuelan crude is similar to the dense, high-sulfur product produced in Alberta’s oil sands, and the prospect of millions of barrels being made available to Gulf Coast refineries has widened the discount for Canadian crude.
As a result, the provincial budget deficit for the fiscal year starting April 1 may reach as much as C$11.6 billion ($8.4 billion) in a worst-case forecast, according to an analysis by Randall Bartlett, deputy chief economist at Desjardins. That would be its largest deficit going back to 1990, except for two Covid pandemic years. […]
Natural resources, including oil and gas royalties, are Alberta’s No. 2 revenue source “and those revenues are more volatile than they’ve ever been.” […]
Alberta is in better shape than other Canadian provinces, Bartlett wrote. Unlike the car parts, aluminum and steel produced in Ontario and Quebec, Alberta’s hydrocarbons are able to go to the US duty-free. The province is expected to lead Canada in gross domestic product growth this year, according to Bank of Montreal’s economics department. […]
Still, tighter spending and higher tax revenue would help shore up Alberta’s finances, Tombe said. But past efforts to raise tax rates have been met with backlash — and lawmakers may not want to fuel separatist sentiment in the province.
“When Alberta historically had a large deficit, the level of concern around ‘fairness’ in the federation goes up,” Tombe said. “Some see the large provincial deficit as evidence of the province needing help but not receiving any.”
Read more here.
