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Market crash, falling oil prices take $6.5B bite out of Alberta surplus estimate

Article online since November 18th 2008, 0:00
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EDMONTON - Energy-rich Alberta's multibillion-dollar surplus projections have taken a $6.5-billion beating over the last three months as the result of plunging oil prices and crashing markets.

Finance Minister Iris Evans is putting on a brave face, bragging that the province is still looking at a $2-billion surplus and is in a good shape to "weather the global economic crisis."

But opposition politicians and economists weren't so optimistic, warning that the worst times may still be ahead for Canada's oil-fuelled economic powerhouse.

"It's official, the boom is over," said Liberal Opposition Leader Kevin Taft. "What we really have to be concerned about is how big is the bust going to get."

Just three months ago, Alberta was projecting a near-record surplus of $8.5 billion. But that was when oil prices hit US$147 a barrel before falling to Tuesday's close of US$55.

Evans conceded that more "sobering" news may be on the horizon because markets around the globe continued to decline in October.

"Obviously that will likely affect some of our funds, our Heritage Fund, our other savings and endowment funds," she told a news conference Tuesday to release the second-quarter fiscal update.

All provinces are feeling the impact of this economic turmoil, but Alberta is heavily reliant on resource revenues and the fallout is more glaring at this point.

Hard times in Alberta will likely be felt across Canada as delayed or cancelled energy projects result in less work being spun out to companies in other provinces.

Economist Mike Percy said Alberta's grim financial news is bound to have an impact on investment in the province, which will affect job growth and tax revenues.

"This year, they're kind of skating by," Percy said in an interview. "It's the budget for next year that will really see the province squeezed."

"When you look down the road, they're going to have to trim operating expenses, especially for health care."

Scott Hennig of the Canadian Taxpayers Federation said Alberta's per-capita spending is among the highest in Canada and needs to be reduced.

"So I think the answer right now is to start cutting (spending)," Hennig told reporters Tuesday.

"Start cutting the carbon capture (projects), start cutting the green trip program for transit, start cutting program budgets," he said. "We're spending more than everyone else, so clearly we could be doing this better."

Alberta's various savings accounts and pension funds have also suffered significant losses as a result of crashing stock markets.

The Heritage Savings Trust Fund has taken a $1.2-billion hit and Evans confirmed Tuesday the rainy day fund won't be getting a cash infusion from the province this year to keep up with inflation.

There are no clear figures on the magnitude of losses in various pension plans that held roughly $26 billion in retirement money for teachers and other provincial employees.

But Finance Ministry officials said Tuesday that they are likely in the six to 10 per cent range.

The radical swing in revenues has forced the province to hold back $224 million for transit projects under a $4 billion green plan announced earlier this year.

Despite mercurial energy prices this year, Alberta is still expecting to have a record $14.6 billion in energy revenues.

This is based on projections of an average oil price of US$63.50 a barrel for the remainder of the fiscal year and an average natural gas price of $6.75 per gigajoule over the same period.

But with sharply lower energy revenues expected in the next budget, coupled with lower income tax revenues resulting from people and companies making less money, the province appears to be heading for a cash crunch.

However, Evans said the Progressive Conservative government is still going ahead with plans to eliminate $1 billion in annual health premiums in the new year.

Alberta has a built-in economic cushion for at least the short term with a sustainability fund now holding $7.7 billion and another $6 billion in a capital fund.

Evans suggested this leaves Alberta the envy of other provinces because it has no debt and income tax rates are among the lowest taxes in Canada.

"And an economy that is still predicted to grow next year," the minister said.

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