Alberta government attacked over $3B deficit

By Sarah O’Donnell, Edmonton Journal November 28, 2012

EDMONTON – Alberta is on track to run a deficit as high as $3 billion in the 2012-13 fiscal year, provincial finance officials said Wednesday, drawing sharp criticism from the opposition.

Speaking to the second-quarter results, Finance Minister Doug Horner said the budget problems revealed in the first-quarter financial update continued during July, August and September. Overall, he said, the province has a bright economic future. But of particular concern is lower than expected energy revenues.

“The biggest factor affecting our resource revenue now is market access for our oil,” Horner said. “We have one customer and one way to get our product to them. On the other hand, our customer has many different suppliers to choose from. This isn’t a good situation to be in and it’s costing us.

“Right now the difference between the world price for a barrel of oil and what our producers can get for Alberta bitumen is about $28. Multiply that by 2.5 million barrels per day and the money adds up very quickly.”

In the first six months of the year, resource revenue was $1.4 billion lower than expected.

Bitumen royalties fell $369 million short of six-month projections, while crude oil was $139 million short. Natural gas was $349 million short and Crown lease income was about half of the $1.1 billion expected.

The province has revised its price for a barrel of West Texas Intermediate crude downward from $99.25 in the budget to $92.50 in the second quarter update.

Those shortfalls matter because about a quarter of the province’s $40-billion budget is funded with resource revenue.

Alberta Finance also reported that expenses for the first six months were $293 million higher than expected. The reason, they said, was dealing with disasters such as forest fires and severe hailstorms.

The second quarter update continued the trend of quarterly reports that paint a less rosy picture than anticipated in the government’s February budget. Instead of an $886-million deficit projected for the year, finance officials said the deficit looked like it would range between $2.3 billion and $3 billion.

During that August update, Horner said the government was asking departments to look for $500 million in savings and to re-evaluate all planned building projects.

Horner said Wednesday that they still expect departments to find those savings. The government is also looking at deferring some construction projects, although he said those have not been identified yet beyond a decision to cancel the police training centre in Fort Macleod.

The deficit will be covered through the province’s sustainability fund, which is essentially a provincial savings account. But that fund had dipped to $5 billion as of Sept. 30 and that is expected to end the year in the $3 billion to $3.7 billion range, according to the second quarter update.

The shrinking sustainability fund is one of several red flags opposition parties raised after Horner’s presentation. Wildrose Leader Danielle Smith said she found the fiscal update troubling.

“It is an absolute train wreck that we have a government overseeing one of the strongest economies in North America that can’t balance its budget,” Smith said.

“What is happening here is this is a government that has always relied on energy revenues to bail them out of their overspending. This time it’s not working for them.”

NDP Leader Brian Mason accused the Progressive Conservatives of making promises during the election campaign based on an unrealistic budget.

“The Progressive Conservatives stole the last election by misleading Albertans about the state of Alberta’s finances,” Mason said. “It’s clear from this budget those promises will be broken and this is a broken promise budget.”

Liberal finance critic Kent Hehr described the second quarter update as an “exercise in voodoo math.” He said it is unrealistic for Albertans to keep expecting to balance its books on fossil fuel revenue and borrowing.

“You have to ask the taxpayer to pay for these priorities and I believe Albertans are willing to do that,” Hehr said. “They understand the need for schools, roads and hospitals.”

Horner said the government will not introduce a sales tax or increase income taxes to help balance the budget. He also said that the government will borrow to build some infrastructure, but said they will also put forward a savings plan in the next budget.

“There is a tremendous cost to our communities if they do not get the infrastructure they need,” Horner said. “This is not a cost you can put a price tag on, but it is something that impacts quality of life in everyday Alberta. To simply say ‘wait’ to a community simply isn’t good enough.”

In August, it was more than just the budget projections that prompted concerns about the first-quarter update; Alberta Finance also was critiqued for the way it presented that financial information.

Merwan Saher, Alberta’s auditor general, said in October his office was investigating whether the department broke provincial laws by failing to provide detailed financial projections, capital planning or financial asset information. It also offered a range for a projected deficit, rather than an actual number.

There was more data provided in Wednesday’s second quarter update, but opposition parties and the Canadian Taxpayers Federation said the documents still lacked the detail that the government is obligated to provide.

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