Report: The economic impact of the Fort McMurray wildfires
The Conference Board of Canada has released a briefing that assesses the impact of the Fort McMurray wildfires on the economies of Alberta and Canada. The briefing estimates that the impact to overall GDP in Alberta will be slightly negative for 2016 as a whole, while at a national level, the impacts will hardly be noticeable.
Highlights of the report include:
- The impact of the Fort McMurray Wildfires to Alberta’s overall GDP will be slightly negative for 2016. Nationally, the economic impacts will be minimal.
- Lost oil production will average about 1.2 million barrels per day for 14 days, translating to roughly $985 million in lost real GDP—or 0.33 per cent out of Alberta’s GDP in 2016 and only 0.06 per cent out of Canada’s GDP.
- However, there are mitigating factors, including the rebuilding effort, which are estimated to add roughly $1.3 billion in real GDP to Alberta’s economy in 2017—contributing 0.4 per cent to overall growth.
“The true cost of this tragedy is the effect on people’s lives and livelihoods, the loss of homes and personal items,” said Pedro Antunes, Deputy Chief Economist, The Conference Board of Canada. “The lost assets will be rebuilt—generating additional economic activity. However, this does not suggest in any way that Albertans or Canadians are better off. In fact, the funds put towards replacing lost capital will leave the provincial and federal governments with more debt, and the insurance industry with the challenge of absorbing what will most likely prove to be the costliest natural disaster in Canadian history.”
The shutdown of activity in Fort McMurray and in the oil sands will have a major impact on the local economy in the short term. However, at the provincial level, much of the economic activity lost in the city of Fort McMurray will likely accrue elsewhere. Families that have temporarily moved to other areas, mostly within Alberta, will need to spend on food and accommodations and other services.
Oil sands production will be lost for some weeks, but how large an effect will depend on the length of the shutdown. The Conference Board assumes that most facilities will be up and running by mid-to-late May and that lost oil production will average about 1.2 million barrels per day for 14 days. This would translate into roughly $985 million in lost real GDP—or 0.33 per cent out of Alberta’s GDP in 2016 and only 0.06 per cent out of Canada’s GDP.
However, there are other mitigating effects; the sheer size of the firefighting, emergency and clean-up effort will generate plenty of economic activity. Insurance companies have been quick to mobilize staff and services to assess damage, provide assistance, and issue emergency cheques. Households are also getting emergency funding from the Red Cross, while the Alberta government is also disbursing $1,250 per adult and $500 per dependent to evacuated households. These funds, totalling around $160 million, will be quickly spent to meet the immediate needs of evacuated households. These efforts will help bolster real economic activity in the province.
Overall, the net effect on the provincial economy is expected to be relatively minor, taking about one percentage point out of real GDP growth in Alberta in the second quarter. While this is significant, it will be temporary as real GDP growth would be boosted by a similar amount once oil sands production ramps back up.
Beyond 2016, the rebuilding effort is estimated to add roughly $1.3 billion in real GDP to Alberta’s economy in 2017—adding 0.4 percent to overall provincial growth. Construction activity in Fort McMurray will likely return to its peak year levels as residential and other infrastructure is rebuilt. Early estimates suggest that in Fort McMurray, 2,400 buildings were damaged or destroyed, including 1,600 private dwellings that were completely destroyed. Most of Fort McMurray’s public buildings were saved from the fire but the city will require additional sums to repair and rebuild roads and other infrastructure. Construction will likely remain elevated in 2018 and perhaps 2019 as rebuilding is completed.
It is important to note that GDP measures economic activity that generates income through wages, profits, or the use of capital. GDP does not directly measure the losses to wealth or assets, such as homes or vehicles. Nor does it measure the direct hit to infrastructure or private capital.
Read the May 2016 issue of Business Review USA & Canada magazine
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.