Finance Minister Bill Morneau unveiled C$10 billion in new credit for businesses affected by the COVID-19 pandemic, Premier Jason Kenney called for greater “unity” and less partisanship, and Alberta fossils announced deep cuts in their 2020 spending plans as Canada began grappling with the double-hit of a coronavirus-driven economic slowdown and crashing global oil prices.
In Ottawa Friday, Morneau said the federal funds delivered through the Business Development Bank of Canada and Export Development Canada would “help companies access cash and keep exporting to markets abroad at a time when COVID-19 is dramatically affecting the functioning of the economy,” CBC reports. “Morneau said this sort of credit facility was an effective tool during the 2008 financial crisis and will be again now. Most of the money will be directed to small- and medium-sized enterprises.”
Morneau also promised a “significant fiscal package”, to be unveiled sometime this week, designed to “stabilize our economy, to support our businesses, and to protect Canadians during this difficult period.” Prime Minister Justin Trudeau added that Ottawa would flow money directly to Canadians in a bid to stimulate the economy.
“We are looking at ways to help Canadians directly, yes,” he said. “Our focus right now is on ensuring Canadians have the resources and the money to not have to stress about rent and groceries and child care and elder care when they’re worried about their health.”
There was no indication from either Morneau or Trudeau that federal funds would be directed exclusively or primarily to the fossil industry. But during a visit to Ottawa Thursday, Kenney focused specifically on oil and gas companies, some of which have lost billions as a result of last week’s price crash.
“We are potentially looking at setting up a credit facility that would allow for access to credit at lower rates of interest for highly distressed companies,” Kenney said. “What we’re thinking of is additional fiscal stimulus that would be in the range of 1% of our GDP thought a number of stimulative measures.”
Kenney also cited the federal Clean Fuel Standard as an example of federal regulations he wants delayed for at least a year. “Layering on additional regulatory costs, which could impose billions of dollars of cost on the Canadian energy sector right now, would be like going to the Ontario auto sector in 2008 and saying, ‘oh, by the way, we’re going to force you to pay billions more in federal regulations,'” he said.
Those same companies moved swiftly last week to cut back their spending, with Calgary-based Cenovus Energy reducing its capital budget this year by nearly 32% and suspending its crude-by-rail program, while Husky Energy moved to “fortify” its business by slashing spending by $1 billion.
“Cenovus said it will continue to monitor the macro-economic and oil price environment and will look for additional opportunities to reduce operating and capital spending if necessary, and was deferring final investment decisions on major growth projects,” the Calgary Herald wrote.
“Husky said it has halted investment in resource plays and conventional heavy oil projects in western Canada,” CBC said. “Husky is also looking outside the country for savings, deferring development of an oil exploration block in offshore China and a natural gas block in Indonesia.”
The Globe and Mail had MEG Energy Corporation and Ovintiv Inc., the U.S. company formerly known as Calgary-based Encana Corporation, announcing cuts of their own. The Globe said Ovintiv’s share price fell more than 70% Monday, Cenovus’ by 50%. In general, the hit was hardest for fossils “with higher costs and larger debt burdens that make them vulnerable to the crashing oil market,” added mergers and acquisitions reporter Jeff Jones.
“No [fossil] energy company can thrive with oil prices crashing back to near the lowest levels of the last downturn, but some in the sector face more pressure than others, and investors zeroed in on debt and production costs as reasons to sell them off,” Jones wrote.
In what the Toronto Star described as an “unusually conciliatory” tone last Monday, Kenney maintained his province is in “uncharted territory”, telling media in Calgary that “all options will be on the table, I repeat, all options will be on the table to do everything that we can in our capacity to help protect jobs and Albertans.” The paper said the usually combative premier “rattled off some of his government’s options: Existing tax cuts, possible infrastructure spending, a new economic advisory committee, and a trip to Ottawa to talk to the federal government.” He even said he’d reached across the aisle, offering to work more cooperatively with NDP opposition leader Rachel Notley.
“This is not a time for partisan politics,” Kenney said. “This is a time for unity.”
The Star says the notable change in tone might signal that cooperation has become more politically expedient for Kenney’s United Conservative Party government than the last year of hyper-partisan sniping.
“It’s possible that he is beginning to recognize that a change in tone and direction, substantive policy changes, both on the investment and on the regulatory side, are going to be necessary,” said Mount Royal University policy studies professor Lori Williams. “If those are successful, then that might make it easier for him to weather this very, very significant storm.”
At the same time, she added, “he’s put himself in a very vulnerable position,” caught between Alberta progressives who note that he’s failed to diversity the provincial economy or invest in green technology, and Wexiteers who want to see him stand tough against Ottawa.
But this may not be the time for theatrics.
“This is going to have a significant impact, not just here where I am in Calgary, but across this country,” said Tristan Goodman, president of the Explorers and Producers Association of Canada. “This is a countrywide problem. I would hope everybody across the country recognizes that.”
“It’s hard to overstate how big a fiscal challenge this represents for the province,” said University of Calgary economist Trevor Tombe.
Significant, perhaps catastrophic—but not quite as “uncharted” as Kenney claims. “The province is facing a fiscal crisis because of a sudden drop in the price of oil. Isn’t this territory as familiar as the back of our hands?” veteran news analyst Graham Thomson writes for iPolitics.
“Oh, the causes might be new—the COVID-19 virus playing havoc with stock markets as a spat between Russia and Saudi Arabia wreaks chaos with oil prices—but the territory looks sickeningly familiar,” he adds. “We have been down this road so many times it has developed ruts.”
Thomson recalls strikingly similar crisis statements from then-Alberta premiers Ralph Klein in 2001 and Ed Stelmach in 2008, both promising aggressive measures to shield the province from the latest economic crunch. “But Stelmach and Klein never talked about overhauling the province’s tax regime so that Albertans weren’t chronically suffering from fiscal whiplash because of the boom-bust nature of energy prices,” he writes. “Not that the government wasn’t constantly warned by economists and others.”
Notley’s NDP “did try to do something different when faced with a collapse in oil prices in 2015,” he adds. “It began borrowing billions of dollars a year to build infrastructure projects, reasoning that it made good economic sense to borrow while interest rates were low to help create jobs and construct new roads, bridges, and hospitals.” Conservatives, including Kenney, thought that was a terrible idea—but now, “our priority is protecting the economy,” he declared last week. “And if that means that in the mid-term we need to borrow money to make that happen, we will do so.”
But Globe and Mail columnist Gary Mason says Kenney has already ruled out the one quick decision that would do the most to stabilize Alberta’s economy. “Now is precisely the time to ask people in the province to make the kind of ‘sacrifice’ they should have been making for years,” he writes. “A modest 2% sales tax would hardly impose an impossible burden on Albertans, while helping alleviate some of the damage that the price collapse is imposing on the province.”
And “more importantly, it would condition people there to the idea of a tax that the rest of us pay every day.”
Like Thomson, Mason says economists have been pointing out for years that Alberta’s finances shouldn’t be dependent on an unpredictable revenue source like oil, and a 5% sales tax—still the lowest among Canadian provinces—would have helped eliminate several years of provincial deficits.
Successive Alberta governments “have come to believe the adage that PST stands for Political Suicide Tax,” he adds. But “at some point, the compassion one has for a province down on its luck has limits. If Alberta does not want to do anything to help itself out of these messes when they invariably arrive, then you can’t feel too badly for them.”
While “a crisis is a terrible thing to waste,” Mason concludes, “Alberta has wasted them before. Premier Kenney has an opportunity to make sure that doesn’t happen this time around.”