Red sea: oil-price squeeze may force Alberta to run deficit in operating budget

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 outside his legislature office Wednesday.

“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. Key projects such as Premier Alison Redford’s proposed 140 new family-care clinics are still a priority but could also be up for review.

“Yesterday at cabinet I made the comment to all of our cabinet colleagues that they’re going to have to make some very tough choices,” said Horner. “They’re going to have to ensure that we are being very aggressive in reining in and restraining our spending for us to meet our targets.”

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.

“My role is to do everything in my control to make sure that we meet the targets (of a balanced budget) that we have for next year,” said Horner.

“Are you still confident you can meet that target?” he was asked.

“Today, I’m very concerned,” he replied.

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 United States 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 United States and to get a line built to B.C. 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.

“We will not deficit finance the operations of this government,” Horner told the house on Nov. 26.

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 cuts have already begun.

On Monday, Alberta Health Services said it was reducing the time allotted to seniors for home care.

On Tuesday, Education Minister Jeff Johnson told school boards the government may not be able to deliver on its promise for new education grant funding of one per cent next year and two per cent in the second and third years.

Anderson said that’s typical of a government that spends billions of dollars on “corporate welfare” carbon capture and storage projects and this summer flew cabinet ministers to London for the Olympics on a tab that included $114,000 for unused hotel rooms.

“Look at the waste,” said Anderson. “The premier has tripled the size of her communications staff. That alone right there is enough to fund the cut for seniors.”

NDP Leader Brian Mason pointed to six-figure payouts to former health executives.

“It seems that some people do get looked after by this government, but it’s not the people who depend on home care and it’s not special needs kids in schools,” said Mason.

The Tories have only themselves to blame, he said.

“Because of the cuts that they’ve made to taxes for wealthy Albertans and to corporations, and because we have some of the lowest royalties in the world, we don’t have the revenue stream to support our program expenditures,” Mason said.

“Since (the Tories) have refused to fix that problem, they’re now left with a situation of either going into debt or cutting programs — and I think they’re going to do both.”