So what’s happening out there?
The Alberta government, 10 months at most away from the next provincial election, is holding up the economic glass and pronouncing it just about darned full.
Business leaders wonder what brand of almost-legal marijuana Alberta Premier Rachel Notley and her financial minister Joe Ceci have been smoking.
Edmonton’s been okay. Our financial health is underpinned by near 25% of the citizenry being on government and quasi-government (health/education) payroll, which the union-friendly NDP government has not cut.
But Calgary was devastated, and most of Northern Alberta’s oil/gas regional centres – Cold Lake, Drayton Valley, Grande Prairie – are still in shock from the oil price crash of 2014, plus increased corporate and personal taxes, carbon taxes and increases to the minimum wage.
In late June at an Edmonton business meeting ATB Financial Chief Economist Todd Hirsch took a stab at defining where the Alberta economy is at.
The analogy I would use is of an athlete in great shape from 1995 to 2015 suddenly stricken with a life-threatening disease from 2015 to 2016, starting to recover by 2017, getting back to training by 2018, but unlikely to return to his/her pre-2016 glory years.
“The recession of 2015/16 was the worst Alberta experienced in 30 years,” said Hirsch. “We hit rock-bottom in June 2016.”
While the numbers from the “recovery” have been encouraging, most business owners and managers do not feel like anything resembling normal.
Employment is at record highs, but the mood is not. Yes, there’s more jobs … but fewer full-time jobs. And the new jobs are nowhere close to the $30-plus wages of the once-hot oil patch. And the work force is smaller – 50,000 to 100,000 people a year moved to Alberta from 2010 to 2015, then net migration out of province happened from 2015 to 2017. This year has seen a net gain of 5,000 so far.
At the Calgary Stampede, Finance Minister Ceci was happily reporting oil royalties for 2017/18 were higher than forecast – so Alberta’s annual deficit would “only” grow by another $8 billion rather than $10.3 billion.
What he skipped over was the shortfall in 2017/18 personal and corporate income taxes. The government forecast $11.1 billion in personal income tax for 2017/18. The reality was $10.7 billion – close to 5% less than expected.
From the corporate world, the NDs expected $3.9 billion. The reality was $3.43 billion – a 12% shortfall.
It would seem, from these numbers, that Alberta isn’t off the sick bed. Despite an increase in both personal and corporate tax rates, 12% less could be squeezed out of the corporate world, 5% less from all of you.
Residential building permits fell 20% from early 2015 to the summer of 2016, and have since remained flat, a “whole lot of nothing,” as Hirsch put it.
Retail has taken a series of hits to the midriff, an 8% drop in sales from its peak of October 2014 to the abyss of July of 2016. Even more stunning, according to Hirsch, was the drop in average discretionary spending (i.e. outside of necessities like food and shelter) of 20% to 30% during the recession.
Things bounced back by 2017, Hirsch said, but have since plateaued. “Retail costs kept rising during the recession. The reality is retail sales aren’t at the level needed to meet expenses.”
Will the recent rise in the price of oil, from $40 Am. In 2016 to pushing $70 Am. today, revive an oil patch that for three years has been on its death bed?
Not when the same capital investment in American shale oil produces a similar profit in a shorter time, at the same time paying less taxes, being less regulated and facing fewer court challenges from militant environmentalists. Then there’s pipelines.
“Canada is not currently attractive for oil/gas investment,” says Hirsch. “Oil companies are not investing here. There’s too much risk of ending up in the courts. There has to be a better balance.”
Yes, other business sectors are in Alberta – tourism boomed in 2017, but tourism is 1/40th the size of the energy industry. Agriculture/forestry of are big economic factors. But oil, natural gas and petro-chemicals create most of Alberta’s economic activity and wealth.
Hirsch usually looks for positives. He is, after all, an indirect government employee. ATB Financial is ultimately owned by the Government of Alberta.
But he sees no clear path back to anything resembling the prosperity of Alberta circa 1995 to 2015.
When his two main quotes were “Not until we are lost, do we begin to find ourselves,” and “There’s no room for facts when our minds are occupied by fear.” I’d have to say it will be a very long haul back to the prosperity we used to know, if indeed we ever see it again.