The massive efforts to respond to and rebuild after the wildfire of Fort McMurray, Alta., will spur economic growth in the coming years but leave insurance companies and governments with a tab of more than $5 billion, says a new report.
The Conference Board of Canada said in a report released Tuesday, November 15, 2016 that the spending will add 0.4 per cent or $1.1 billion to Alberta’s GDP next year, followed by growth of 0.2 per cent and 0.1 per cent in 2018 and 2019, respectively.
The ramp-up in reconstruction, needed to rebuild the nearly 2,000 homes and businesses destroyed by the May fire, is also expected to create about 9,000 jobs next year and cut a 0.1 percentage point off the unemployment rate.
The report concluded that the economic boost from spending on the fire this year will be more than offset by lost oilsands production as companies were forced to shut down operations, shaving off 0.1 per cent or $456 million from Alberta’s GDP.
The Conference Board also warned that while the increased spending in the coming years will boost the GDP, it isn’t suggesting there will be any overall benefit to the disaster.
“The true cost of this tragedy is its effect on people’s lives – the loss of personal items and homes – and livelihoods,” it said.
“While rebuilding and replacing lost assets will generate economic activity, this doesn’t suggest that Canadians in general or Albertans in particular will be better off economically.”
The Conference Board said about $3.6 billion of the spending will be covered by insurance payouts, while governments will be on the hook for about $1.5 billion in firefighting, relief and rebuilding costs.
Another $200 million came from early payouts from the Alberta government, the Canadian Red Cross and oilsands companies to cover immediate household needs, bringing the total estimated cost of the fire by the end of 2019 to $5.3 billion.
The report says responsibility for covering costs of the fire are in stark contrast to the 2013 Alberta floods, where provincial and federal governments took a $3 billion loss compared with $1.8 billion for insurers because of a general lack of flood insurance.
The report also says that while governments will see a boost in personal income and sales taxes, corporate income tax over the next three years will overall be lower than what the Conference Board had forecasted before the fire because of foregone revenues from oil companies.
Besides forcing the evacuation of close to 90,000 residents from the Fort McMurray area, the fire also resulted in major oilsands operations losing 47 million barrels in production and $1.4 billion in potential revenue.
The Conference Board said this year’s shortfall in oil production means Alberta will see an overall $25 million loss in royalties and a $58 million reduction in corporate income tax between 2016 and 2019, while increased personal and indirect taxes will offset that for an overall $41 million increase in tax revenue.