Plunging public revenues force finance ministers to examine low oil prices

OTTAWA—The topic of sliding oil prices is expected to surface this weekend when provincial finance ministers from across Canada have their first face-to-face meeting with federal counterpart Joe Oliver.

Saskatchewan Finance Minister Ken Krawetz said the federal-provincial gathering begins December 14 with an informal get-together in the Ottawa area, followed by sessions that will include a presentation by Bank of Canada governor Stephen Poloz.

Krawetz also expects the group to discuss the plunging price of oil, which threatens to erode public finances in several oil-rich provinces as well as the federal government’s bottom line.

Oil prices fell below US$64 a barrel this week—roughly a 40-per-cent slide since mid-summer.

“We are concerned about the loss of revenue, there’s no question about that,” Krawetz told The Canadian Press in an interview.

“We’re also concerned that if indeed there is a prolonged decline, what will be the effect across the entire nation with regards to oil?”

In oil-producing Saskatchewan, Krawetz estimates provincial coffers will lose about $20 million for every $1 drop in the price of a barrel of oil.

He said the situation could be even worse in neighbouring Alberta, where the provincial government estimates the province loses about $215 million over a 12-month period for every loonie shaved off the price of oil.

“So, those are things that we’re going to have to be aware of _ if the federal government is looking at ensuring that there is support for a particular industry,” said Krawetz, who also serves as deputy premier.

In his fall fiscal and economic update last month, Oliver predicted the slide in crude prices could siphon $500 million from the federal pocketbook this year and $2.5 billion per year between 2015 to 2019.

Prices have dipped even deeper since that assessment, but Oliver has insisted Ottawa remains on track to run a surplus in the 2015 election year. The Finance Department’s latest estimate is a $1.6-billion surplus next year.

“Obviously, there are consequences for the economy,” Oliver said Wednesday. “There are advantages and disadvantages.”

He said there are benefits for consumers at the gas pump as well as savings for manufacturers.

On the other hand, Oliver said oil companies and provinces that rely on royalties will be forced to brace for financial hits.

For this fiscal year, Krawetz doesn’t expect Saskatchewan’s books to suffer a big blow, thanks to things like strong crude prices during the first six months of 2014 and a healthy agricultural harvest.

But beyond 2014, Saskatchewan’s financial situation could face negative consequences if prices remain low.

“If indeed we’re going to see $60 a barrel for all of next year, that will be of concern and we’re going to have to be looking at our expenditures,” said the veteran finance minister, who’s been responsible of the portfolio since 2010.

Krawetz is looking forward to Poloz’s presentation, which he hopes will offer further insight into the global conditions affecting oil prices.

When asked what he expects will be the hottest issue during the meeting, he predicted discussions would dwell on the state of the world economy.

“It’s not necessarily oil,” he said. “We are in a fragile situation … I think that’s going to be on the top of mind of all finance ministers.”

Krawetz also plans to raise issues important to his province, such as its ongoing shortage of skilled workers, the need to improve aboriginal education and the allocation of federal infrastructure cash.

The gathering, he added, will also give the finance ministers a first opportunity to meet face to face with some newly appointed provincial colleagues and Oliver, who took over as finance minister from Jim Flaherty in March.

The provincial ministers met with Oliver by video conference in June.