OTTAWA — The sharp collapse of world oil prices will cut the Canadian government’s income by $4.3 billion this year and deliver a nearly $10-billion blow to the provinces, says a new report Tuesday by the Conference Board of Canada.
The study predicts the slide in crude prices to chop $4.5 billion from provincial royalties in 2015, with the bulk of the losses expected to strike the oil-producing regions Alberta, Saskatchewan and Newfoundland and Labrador.
Due to cheaper oil, the board also predicts provincial tax revenues to drop another $5.2 billion this year.
“The dramatic decline in the world crude oil prices since last June will have a major impact on Canada — one of the largest oil producers in the world,” says the report, titled, “Regional Shakeup: The Impact of Lower Oil Prices on Canada’s Economy.”
The report was released as the federal and provincial governments try to grapple with the impact of falling oil prices and how the tumble could affect their bottom lines.
The extent of the number-crunching challenge faced by Ottawa, which indirectly amasses cash from oil production, was recently pushed into the spotlight.
Last week, federal Finance Minister Joe Oliver announced the government would take the unusual step of postponing the budget until at least April, so it could assess the fallout of tumbling crude and the sudden reduction in capital expenditures in the Alberta oilpatch.
Oliver warned in November dropping oil prices could trim federal revenues by $2.5 billion a year between 2015 and 2019. Since that time, crude has plunged even further, from about US$80 per barrel to under US$50.
“The federal government will share in the pain,” said the Conference Board report.
Canada’s central bank has also been studying the potential damage.
On Wednesday, the Bank of Canada is expected to produce its forecast on what the oil slump could mean for the Canadian and world economies when it releases its latest monetary policy report.
The central bank will also will make its interest-rate announcement. It’s expected to stand pat on Canada’s trend-setting rate, which has been cemented at one per cent since September 2010.
Last month, Bank of Canada governor Stephen Poloz said lower oil prices could slice 0.3 percentage points off the country’s pace of economic growth.
World oil prices have sunk below US$50 per barrel since tumbling from their perch above US$100 last summer.
The Conference Board report predicted crude prices to start rising again and reach US$60 per barrel by the end of 2015. It projected prices to average about US$56 for the year.
Provincially, the oil-price decline is expected to hit hardest in Alberta, which the Conference Board said accounts for 77 per cent of Canada’s oil production.
On the positive side, the report also said low oil prices will produce winners in Canada.
“Ontario and Quebec — Canada’s two largest provinces — will benefit the most from weaker oil prices,” it said.
“A combination of stronger U.S. economic growth and the weaker loonie, which is currently trading in the US$0.84 range, will boost demand for exports from these provinces.”