A $2.4 billion drop in resource revenue has put Alberta on pace for a deficit of between $3.5- and $4 billion — one of the highest deficits in history, Finance Minister Doug Horner revealed Tuesday in the province’s third quarter fiscal update.
The sea of red ink will be four times deeper than was forecast in the budget last February. The province initially predicted an $886 million deficit, but by the second quarter had increased its deficit forecast to $2.3 to $3 billion.
Now it’s forecast to be $1 billion more, which will rival the $4 billion deficit the Don Getty government posted in 1986-87.
Horner blamed the ballooning deficit on the discounted price Alberta companies are getting for the heavy oil or bitumen from the oilsands, which has had a dramatic impact on royalties and taxes.
“We’re seeing declining resource revenues in Alberta and that’s, for the most part, a result of Alberta’s market access problem,” Horner told reporters at Calgary’s McDougall Centre, “I know you have heard me talk a lot about the bitumen bubble. … It is a bubble that is not going to pop any time soon and it is costing us a lot of money.”
But he noted it is not just the differential between the price of Alberta heavy oil and West Texas Intermediate that is hurting the treasury, but also the higher exchange rate and lower land lease sales.
“It doesn’t paint a pretty picture for the third quarter, and to be honest, it’s not getting all that prettier,” Horner said.
The new deficit projection doesn’t include $1.1 billion the province is borrowing for the twinning of Highway 63 to Fort McMurray or the $4.1 billion already borrowed for various financial corporations and for lending to municipalities.
The sustainability fund which has covered four previous deficits has been reduced to $3.4 billion from a one-time high of $17 billion.
The flood of red ink prompted the government to simultaneously announce a three-year management salary freeze that it says will save taxpayers $54 million. Horner also announced plans to cut public sector managers by 10 per cent over the same three-year period.
While he said he didn’t want to interfere in the ongoing collective bargaining, unions should take the management wage freeze as a sign of the times.
“We’ve been fairly consistent in saying that there is no new money,” he said. “They should take that as a strong signal of what we have in mind.”
The province froze MLA wages earlier this month, rejecting a one per cent cost of living increase to their $156,311 salaries.
Horner said his Conservative government has also found $600 million of in-year savings across all ministries.
Guy Smith, president of the Alberta Union of Provincial Employees, said he doesn’t think the government should be blaming a $3.5 plus billion deficit on the discounted price of bitumen, which accounts for less than $1 billion of the shortfall.
“It seems rather strange that the minister of finance would tell Albertans that this is a long-term situation because it’s probably not going to be,” he said. “It seems to be very much a knee-jerk reaction to a situation that won’t last.”
Smith said Horner is obviously interfering in the collective bargaining process before it even begins and that rather than slash management jobs, he should be redeploying managers to the front lines to meet the province’s rapidly growing population and its demand for more public services.
Alberta Federation of Labour President Gil McGowan said the finance minister appears to be more intent on finding scapegoats than solutions.
“It’s clear they are desperate to blame anyone but themselves,” he said. “It’s time for the government to stop playing the blame game.”
McGowan said the question Albertans should be asking is not where to cut, but why does the province have a deficit in a booming economy.
“The real cause of the problem has to do with years and years of cuts to taxes for high income earners and corporations, and years and years of royalty giveaways,” he said. “It has nothing to do with how much we pay our public sector workers.”
Wildrose Leader Danielle Smith said the fiscal update shows Premier Alison Redford’s provincial budget is unravelling.
“We’re seeing the budget was an absolute farce,” she said.
She dismissed as “window-dressing” the government’s plans to cut management by 10 per cent and to freeze their salaries.
Liberal critic Kent Hehr said it was folly to blame slumping oil and gas revenues for the financial problems, saying the government needs to budget more conservatively and change the tax structure.
“Everyone knows our revenue structure is broken,” he said.
NDP critic David Eggen said Albertans are angry over the Tory government’s bungling of the province’s finances.
“They know our economy is growing,” he said. “What’s wrong with this government? Why did they miss the boat that’s been sailing along in Alberta?”
The Calgary Herald, Tuesday, Feb. 19, 2013
Byline: Darcy Henton and Chris Varcoe