Horner tells Calgary chamber Alberta is being slammed by bitumen prices
CALGARY — As Finance Minister Doug Horner warned Albertans of a no-fun provincial budget this spring due to a massive revenue shortfall, he acknowledged Monday the government will be billions of dollars off in its projected bitumen royalties this year.
Continuing a recent public relations blitz by the Tory government, Horner made the case at a Calgary Chamber of Commerce luncheon that the province is being slammed by the steeply discounted price for bitumen.
Speaking to reporters later, he suggested the price discount for Alberta oilsands versus benchmark light crude oil — a differential that exceeded $40 a barrel last month — will put the province more than $3-billion below its revenue projections in the 2012-13 budget.
“It’s not pretty,” he said. “This differential has widened out during a period of time where seasonality would normally indicate we would get a better result.
“We did not.”
Horner said an accurate picture of Alberta’s bitumen royalties will be seen in the government’s third-quarter financial report, to be released next month. The province had projected oilsands bitumen royalties of $5.7 billion this year.
Last spring, the Redford government said total resource revenues would top $11 billion — including $2.1 billion from conventional oil and $1.2 billion for natural gas. Both those commodities are also taking a hit because of lower-than-projected prices.
Horner told the chamber crowd the government is facing a “structural change in its key commodity” that requires belt-tightening in the medium term. Departments have been told to aggressively rein in spending ahead of the March 7 provincial budget, he said.
“This is not going to be a fun budget,” the finance minister added.
The speech came the same day the government released the results of its “Dollars and Sense” consultations on the provincial budget and long-term fiscal plan.
Among those Albertans who took part in panel discussions or responded to an online survey, most supported increased savings, borrowing for capital expenditures if it made financial sense, and weaning the province from its reliance on resource revenues — potentially through tax changes.
The government has been bedevilled politically by the question of whether it will look to new taxes — such as introducing a provincial sales tax or hiking the flat tax on income — to deal with the revenue shortfall.
Horner reiterated there will be no new taxes in the upcoming financial plan. He said there could ultimately be a provincial debate about tax measures, but only after the government has looked at all aspects of its $40 billion in spending.
“The first thing we do is look to our own house before I start digging into the pockets of those in your house,” he told reporters. “That’s something Albertans told us loud and clear.”
But Wildrose MLA Rob Anderson said the latest report is simply part of the government’s efforts to pave the way for future tax hikes and debt. He also castigated the PC government’s plan to borrow to pay for infrastructure.
“Borrowing for politicians is heroin. That’s what it is. Once will never be enough. They will borrow and they will borrow and they will borrow for every pet project they say is important,” he said.
Chamber of commerce economist Ben Brunnen said borrowing to finance capital projects can make sense as long as the government sets binding parameters on its debt servicing cost.
Brunnen said the message of Horner’s speech was good news for the city’s business community. “The provincial finance minister committed to no tax increases and also prioritizing government spending … as opposed to looking for different revenue sources,” he said.
With oilsands companies making investments expected to be worth about $23 billion this year, Alberta’s energy sector is attracting job seekers from across Canada, and the province’s population is forecast to climb to five million within two decades from 3.7 million.
To keep pace with the growth, Redford promised in last year’s election campaign to spend almost $4 billion on 50 new schools, 140 medical clinics and post-secondary education, a pledge largely based on growing oilsands royalties.
Lower revenues means “tax increases are going to have to come,” said George Gosbee, chairman of Calgary-based investment-banking company AltaCorp Capital Inc. “This is going to be a tough political decision.”
Other parties in the legislature said the Tories are avoiding the larger revenue issue, even while program reductions loom in the budget.
“Unless the government sobers up and deals honestly with its revenue problem, Albertans are going to face significant cuts to essential services,” said NDP finance critic David Eggen.
Liberal Leader Raj Sherman said the budget consultation study showed the government is out of touch with provincial residents.“Albertans understand you get what you paid for,” he said.
The tough budget talk comes as the province is embroiled in contract talks with the Alberta Medical Association and faces expiring contracts with the Alberta Union of Provincial Employees and United Nurses of Alberta. The Alberta Teachers Association is also in negotiations with government-funded school boards.
The PC government’s message of restraint is already raising concerns among public sector employees. Health Sciences Association of Alberta president Elisabeth Ballerman said medical care in the province is already feeling the strain in areas such as community care and ambulance service.
“There are worrying signs that point to vital health-care services being cut again — and we all know that when health care is cut, patients bleed,” she said in a statement.
With files from Bloomberg