Alberta's financial troubles deepen as deficit swells by $500M

Alberta's already recorddeficit is projected to grow by more than $500 million, due mainly to thefinancial impact of the May wildfires inFort McMurray, according to the province's latest quarterly update.

The latest fiscal update, delivered Tuesday by Finance MinisterJoe Ceci,cites the wildfires asthe main factor pushing the deficit $527 million higherto $10.9 billion.

• Preliminary cost of Fort McMurray fire estimated at $615 million
• Fort McMurray wildfire costliest insured disaster in Canadian history

Overall, the quarterly forecast calls for theeconomy to shrink by2.7 per cent this fiscal year. That, added to the estimated contraction of the economy of 3.7 per cent in 2015, will createthe largest two-year consecutive decline in the economy since the early1980s.

Cecisaid the province has no intention of abandoning the fiscal plan it began putting in place last year, and will not give in to pressures to make "knee-jerk cuts" to any programs.

"We've seen that picture before," he said of calls for cuts. "And it doesn't work out well for Albertans.The plan we have is one that all economists agree with."

Swift reaction from Opposition

The Wildrose Opposition was quick to hammer the NDP government for putting Alberta back into a net debt position for the first time in nearly two decades.

Though oil is trending higher than expected, wages are down three per cent this year, andAlbertansshould prepare theirwallets for thegovernment's new $3-billion carbon tax, set to come into effect onJan. 1, 2017, the Wildrose said.

• Alberta carbon tax regime to be most stringent in Canada, Ecofiscal Commission report says
• Alberta defends carbon tax as report calls it aggressive

"Today is the end of the fiscal legacy Albertans worked so hard to earn," WildroseLeader Brian Jean said in a statement.

"The NDP's plan is making things worse for Alberta families at a time we can least afford it.It's clear the NDP plan isn't working. We need to reverse course on the NDP's risky economic agenda, start saving pennies on every dollar spent across government, and restore the Alberta Advantage so we can get Albertans working again."

Fort McMurray fire impact

The finance minister's quarterly update takes into account $452 million in financial assistance from the federal government to help pay for the wildfires.

The updated numbers also reflect $300 million in lost revenue from drops in corporate and personal income taxes, and lost resource revenues due to fact that 40million fewer barrels of oil were produced during operational shutdowns caused by the fires.

The update now forecasts oil prices for the year to average $45 a barrel, up from the $42 projected in the spring budget. If that forecast holds,non-renewable resource revenues would rise by $744 million for the year over those budget projections.

Spending to grow

According to the update, totalgovernment expenses areprojected to growby$1.2 billion since the last budget. Thatmoney is needed to coverhigher than expected costs for things like disaster assistance, capital grants including 2013 flood support,debt servicing costs and $122 million extra in general operating expenses.

Those increased expenses include $12 million for a new grant program for small brewers,$100 million for pharmaceuticaldrug costs, disaster assistance for the Fort McMurray wildfires and flood assistance from last year.

Adding to the hardship is the continued impact of low oil prices. The declining investment in Alberta and lower resource production has had an impact on every sector of the economy, resulting in fewer jobs in construction, manufacturing, and even the hospitality industry.

Revenue collected shrinks

The province collectedless revenue from corporate income tax, and resource revenue from royalties declined up to $25 million during the wildfires.

Because of the downturn in the economy, Albertans bought fewer cigarettes and spent less ongamblingtwo areas government has come to rely on for steady sources of income.

While a far cry from the population boom of a few years ago, Alberta's population is still growing and is expected to climb by another 1.5 per cent.

Despite the grim news, the Alberta government predicts the economy will see modest improvements in 2017, generated by the reconstruction of Fort McMurray, investments in infrastructure, and a slight increasein oil prices.