Kenney’s Alberta budget plan falls apart as oil prices plummet
Economists have repeatedly warned Alberta’s politicians about gambling on oil prices. They didn’t listen and now, as oil prices are in free fall, they are about to pay the price.
Jason Kenney’s budget plans were supposed to bring Alberta back to a balanced budget. In large part, the United Conservative plan relied on oil royalties, which in turn rely on oil prices.
The 2020 budget was betting on oil prices, for WTI Crude, to remain around $58. Today, the price for WTI Crude is floating around $30.
IRMAGIRD. WTI hits $30 ?— Blake Shaffer ? (@bcshaffer) March 8, 2020
A reminder that #ABleg Budget 2020 relies on $58 WTI. The forward strip is now $20+ below that.
Hit to annual govt revenue about $5 billion if prices remain here. ($7B loss on WTI assumption offset by $2B gain on tighter WCS basis and weaker $CAD) pic.twitter.com/KJnmxQMWoJ
At these prices, Kenney’s dreams of a balanced budget become exactly that: a dream. Trevor Tombe, an Associate Professor at the University of Calgary, estimates that the Alberta government could be facing a massive deficit if prices don’t rebound.
Huge price drop makes it impossible to be precise, but ballparking the AB deficits given current market prices:— Trevor Tombe (@trevortombe) March 9, 2020
Big margin of errors! But absent changes in #ableg fiscal policy, we're on track for the largest deficit ever.
With Russia and Saudi Arabia signaling a long price war and the coronavirus reaching pandemic levels, that possibility looks slim.
Kenney used the promise of a balanced budget to justify massive public spending cuts. Now, it appears all that was for nothing.