Canada — With wildfires burning across Alberta and Fort McMurray preparing for a massive rebuild, the province faces billions in new spending for everything from mental health counselling to loaded debit cards that will take a heavy toll on government finances.
In some circles, the extraordinary events of this hot, dry spring have underscored the need for a long-term reliable revenue source.
“It would be helpful not for today, but for tomorrow and for the future,” said Ergete Ferede, associate professor of economics at MacEwan University.
Ferede is one of 19 prominent academics who wrote a letter to the Edmonton Journal in February that called on the provincial government to adopt a harmonized sales tax. Though the idea has long been considered “political suicide” for any party that adopts it, Ferede said the conversation is one that needs to happen, especially now.
“Down the road, how can we have a stable revenue source so that we can be prepared for this kind of unforeseen and unexpected natural disaster?” he asked. “And more importantly, to defend our public services in a stable and reliable way.”
Another signatory to the letter takes the idea a step further, suggesting the provincial government should leverage the goodwill it has accumulated during its handling of the wildfires.
Ricardo Acuna from the Parkland Institute said now might just be the right time to broach the normally taboo political subject.
‘Call it a disaster levy’
“Now is a good time to leverage that conversation,” said Acuna, who believes the public supports the way public services have been dispatched during the crisis.
“Call it a disaster levy, or something like that,” he said. “I think Albertans need to acknowledge that we do have an existing shortfall already, and you can’t get away from calling that a sales tax, or revision to the income tax.”
The shutdown of some oilsands operations due to the wildfires will rob the provincial government of approximately $1.8 million a day from bitumen royalty revenues, according to Alberta Treasury and Finance.
That represents just over half of the projected $3.1 million a day take, based on figures from a year ago, a substantial amount of revenue never to be recouped.
“We have budget lines in place to address emergencies,” said Alberta Finance Minister Joe Ceci. “And processes in place through the year where we can update our fiscal plan. So I think we’ll be OK on that regard.”
But Ceci admitted he’s keeping his eye on just how credit rating agencies will view the mounting costs and lack of a specific debt repayment plan.
Even with the escalating costs and no firm timeline for when the deficit and debt will be paid off, the credit rating agency Moody’s cut the Alberta government some slack last week. Moody’s is one of three agencies that downgraded Alberta’s blue ribbon AAA rating following the recent provincial budget. But the agency said it believes the fires won’t lead to a further downgrade.
Fires to cut 0.33% from GDP
The latest prediction from the Conference Board of Canada estimates the fire will translate into a 0.33 per cent loss to Alberta’s projected GDP for 2016, and just a 0.06 per cent share for the Canadian economy.
But the conference board also believes the economy will benefit from a bit of an economic bump when oil production resumes, and rebuilding of Fort McMurray gets underway.
Albertans will get a better idea of how the costs add up by the end of August, when the first-quarter fiscal update is released.
That’s also when wildfires should be winding down and the hard numbers for the costs start piling up. There’s no doubt those numbers will be grim.
“The natural disasters we are facing of course are unprecedented,” said Ferede. “And the magnitude and the financial need to recover from this kind of natural disaster will be huge for the province, for individuals, for businesses. The problem is, this occurs at a time when governments are running huge deficits.”
Ferede believes wildfire costs will push Alberta deeper into deficit, and without a predictable revenue source it will be even harder to recover.
‘There is no other way’
“I think many people have forecast this will have a significant impact on Alberta’s GDP for a long period of time, and governments will have to spend lots of money,” he said. “It will have a negative impact on our economy. There is no other way, the government has to step in and help.”
Acuna said Alberta has been operating “on a prayer for higher oil prices” for the past two decades.
“We see what happens when that doesn’t come through,” he said. “Add to that low oil prices, plus these kinds of disasters will really wreak havoc with not just Alberta’s ability to fund services but also our economy as a whole.”
But the official opposition has a different take on the situation.
Wildrose MLA Derek Fildebrandt said the provincial government needs to accurately reflect the costs of natural disasters in the budget.
“The last thing Alberta needs right now is another tax,” said Fildebrandt. “Especially when we’re going through a severe recession with little sign of letting up.”
As Alberta stares down a $10.4-billion deficit, Premier Rachel Notley said only last month that discussion of a provincial or harmonized sales tax won’t happen before the next provincial election.
But she acknowledged that discussion needs to happen.
“In the long-term, is this a conversation we need to have?” Notley said during an interview with CBC News. “I think it is, but not right now.”