PLANT

Oil price squeeze may force Alberta to run budget deficit

Canada's wealthiest province is on track to run a $3 billion deficit.


EDMONTON—The price squeeze on heavy oil is gutting Alberta’s bottom line and Finance Minister Doug Horner says it’s now all hands on deck to cut spending and shelve projects.

“I’m very, very concerned about where those (oilsands) numbers are headed,” Horner said. “This is a situation that is actually affecting the Canadian GDP. It’s that much of an impact on the Canadian economy.”

Horner said everything except higher taxes or new taxes is being explored.

But even with emergency austerity measures, the budget may not only end up in the red on the capital spending side, as previously announced, but also on the operating side.

The province runs a $40-billion budget with a quarter of its revenue from non-renewable resources.

Alberta is on track this year to run up a $3-billion deficit, which will be covered by the rapidly depleting Sustainability Fund.

Put simply, said Horner, Alberta is caught in a price vise.

Oilsands bitumen was selling for $US47 a barrel Wednesday, about US$40 a barrel less than the Northern American benchmark West Texas Intermediate.

The reason is demand is falling from Canada’s main customer, the US due in part to that country’s struggling economy and a boom in light oil in North Dakota. As a result, said Horner, Alberta is being forced to sell at a comparative discount just to stay competitive.

Alberta desperately needs access to new customers in the roaring economies of China, Mexico and Brazil, Horner suggested.

“All of those jurisdictions are going to have fairly significant growth.”

The province has been lobbying to get extended pipeline access to the Gulf Coast in the US and to get a line built to BC ports to ship oil to China.

The economy has become a thorny political problem for Redford. She won a majority government in the April election on a promise to balance the budget and begin running surpluses.

Opponents called it the “Alison in Wonderland” budget based on unattainable oil revenue forecasts.

“It was a fudge-it budget to begin with,” said Liberal Leader Raj Sherman. “They can’t balance the books or deliver the services they promised because the finance minister overestimated revenues and lacks the necessary financial control.”

Last month, Horner began stepping back from the balanced budget promise. He announced the government would begin taking on debt to pay for roads, schools and hospitals, but said the operating budget would be balanced.

The Tories likened it to the family budget: debt is OK for big-ticket items such as a mortgage as long as you have a plan to pay it off and you aren’t borrowing to pay for day-to-day necessities.

So much for the grocery budget, said Wildrose finance critic Rob Anderson.

“At the very least you would think they would not borrow to pay for groceries, and it looks like they’re going to have to,” said Anderson. “It’s right back out of the (high deficit) 1980s of (former premier) Don Getty,” he said. “It’s eerie.”

©The Canadian Press