Alberta sees record deficit as oil sector slumps

CALGARY, Alberta (Reuters) - Alberta forecast a C$4.7 billion ($3.8 billion) deficit for 2009-2010 on Tuesday -- its largest ever -- as the oil boom that had sustained Canada’s top energy-producing province turned to bust.

A truck drives down a street at Syncrude's oil tar sands operation near Fort McMurray, Alberta in this May 23, 2006 file photo. REUTERS/Todd Korol/Files

Alberta, which delivered 14 straight surpluses as its oil industry pumped out cash, may not be back in the black for four years as it looks to shovel C$23.2 billion into infrastructure like roads, schools, housing and health facilities as well as environmental initiatives, the government said.

The combined budget shortfalls could balloon to as much as C$10.3 billion. They will be funded out of Alberta’s newly expanded C$17 billion “sustainability fund,” made up of savings from previous surpluses and money that was set aside for capital projects and carbon capture and storage.

The red ink is blamed on projected revenues from energy being slashed by more than half from last year as weak commodity prices and the credit crunch forced the industry to rein in spending. Alberta is one of the largest suppliers of oil and gas to the United States.

Unless the economy recovers, the Conservative government of Premier Ed Stelmach will look to chop C$2 billion a year in spending during the expected deficit period, Finance Minister Iris Evans warned. But she was coy as to what could get cut.

“We recognize there are only two alternatives -- you raise more money, so that means taxing your people, or you reduce your expenditure,” Evans said. “We’ve got some tough choices to make in the future, but Albertans know that this government wants to be the most competitive tax regime in the country.”

The government is reluctant to slice infrastructure spending, as that would mean job losses at the worst time, she said. As many as 80,000 jobs will be dependent on the C$7.2 billion earmarked such outlays this year, Evans said.

The government said it aims to start talks with unions to impress upon them the seriousness of the fiscal situation, implying that requests for concessions may be in the offing.

The only tax hikes planned for this year are C$70 million more on tobacco purchases and C$180 million on liquor.

Alberta had become so used to surpluses that it in the 1990s it outlawed deficits, forcing the Stelmach government to soften the legislation Tuesday in the name of “flexibility.” Its last record deficit was C$4 billion in 1986-87.

The 2008-09 shortfall is estimated at C$1.4 billion, well off a C$1.6 billion surplus predicted just a year ago.

Since then oil prices have fallen below $50 a barrel from a record above $147, natural gas markets have slumped and the value of the province’s investment fund has dropped.

The deficits in the province of 3.5 million people put it in league with Canada’s federal government and several other provinces in trying to shore up economies with stimulus spending amid the downturn.

Alberta predicted revenue of C$31.7 billion for this fiscal year ending March 31, compared with C$35.6 billion last year.

Non renewable resource revenue is projected at C$5.9 billion, compared with year-earlier C$12.3 billion. Earlier this year, Alberta announced C$1.5 billion in incentives to stimulate drilling.

Overall spending is pegged at C$36.4 billion, down from C$37.1 billion.

The government estimated a 2 percent real economic contraction in 2009 and 1.8 percent growth in 2010. For years Alberta led Canada in growth as money and people flowed in to support projects like oil sands developments, C$90 billion of which have been delayed or canceled in the past six months.

The budget assumes benchmark U.S. oil will average $55.50 a barrel this year, down 35 percent from last year, and wellhead natural gas at C$5.50 a gigajoule, down 21 percent.

($1=$1.24 Canadian)

Reporting by Jeffrey Jones; editing by Jeffrey Hodgson