Alberta's finances took a dramatic turn for the worse in the second quarter of the fiscal year, as lower oil prices, higher expenses and tanking investments combined to increase the projected year-end deficit by $1.7 billion.
The numbers released Monday show the province will now run a $3.1 billion deficit in the fiscal year, which runs from April 1 to March 31.
The numbers are an improvement from the spring budget, which showed a deficit of $3.4 billion, but a dramatic fall from the government's fiscal update in August, which had the deficit pegged at $1.3 billion.
At that time, then Treasury Board President Lloyd Snelgrove even speculated the government would be able to balance the budget before the year was out, a possibility that now seems remote.
Current Treasury Board President and local MLA Doug Horner said the fluctuating global economy has been difficult for the province to manage, but Alberta was on much better ground than other jurisdictions.
"This has been a very up and down year. It has been a very rough year," he said. "There really is no place better in the world today than Alberta to weather the current economic storm."
Finance Minister Ron Liepert said the situation the province is in today is starting to influence how the government will deal with the year ahead.
"As we prepare for budget 2012-2013 we have some very tough decisions to be made," he said.
Horner and Liepert held a series of roundtable forums on the budget and there is an online survey on the government's website aimed at gauging Albertan's views. Liepert said he believes Albertans want government to take a prudent and balanced approach that doesn't rely so heavily on unpredictable commodities.
"I think there is a realization by Albertans that we can't continue the way we have been for the last number of years and hope that the good ship oil prices continues to come in," he said.
Both men said the province may have to continue looking at new taxes or bringing back healthcare premiums to stabilize the province's finances.
During the roundtable discussions, participants told them to hold onto the tax advantage the province holds, but were open to talking about ways to bring in more revenue.
"There was a general willingness to have a discussion about all revenue and about new ways of doing business," Horner said.
Lower commodity prices and decreased production have combined to see the government bring in less money from royalty revenues. Conventional oil is expected to bring $1.7 billion to government coffers this year. This is $231 million lower than what the government predicted in the budget and $462 million lower than the first quarter report in August.
Oilsands royalties tell a similar picture. They are now projected to bring in $3.9 billion, $207 million lower than at budget and $980 million lower than in August.
Every dollar that the average price of oil drops costs the province $141 million.
Taxes impacted
The government is also now expecting $538 million less in personal income tax than it did in August. With turmoil in Europe and south of the border, Alberta's investments also took a dramatic decline and the government is expecting to see $491 million less than at budget and $625 million lower than in August.
It's not all bad news for the government's finances however, with a huge return on land sales bringing in $1 billion more than the government anticipated during budget. Land sales have been beating expectations all year, including a record sale price for one parcel at $842 million.
Corporate taxes should also paint a rosy picture, with the government now expecting to take in $301 million more than was budgeted.
Expenses up
Along with experiencing falling revenues, the government is also spending more.
Over the course of the year the government has spent much more than budgeted on natural disasters including the Slave Lake fires, flooding in southern Alberta and the mountain pine beetle infestation.
Fulfilling a campaign promise Premier Alison Redford made during the Progressive Conservative leadership race, the government is also adding $107 million to education spending.
The changes mean the government will now have to draw further on the sustainability fund than it had planned in August. The fund is now projected to have $8.1 billion in it at the end of the year. This is $1.6 billion lower than was projected in August.
Opposition unimpressed
Liberal critic Hugh MacDonald said he believes the Tories are trying to downplay that revenue is up and he expects to see the government use the $8.1 billion for pre-election spending.
"I would caution Alberta taxpayers to be very cautious about the promises made by this government in the next few months."
Wildrose MLA Rob Anderson said the government isn't seriously looking at its spending.
"This government can clearly not control their spending. They are not going to balance the books through any kind of austerity as was alluded. They have decided they are going to tax Albertans more," he said.
NDP leader Brian Mason was in favour of taxing some Albertans more and said Conservative moves that brought a flat income tax to Alberta and lowered corporate taxes have painted the province into a corner financially.
"Our position is not that we want to tax corporations into the ground. We want to make sure that we have competitive rates, but we could increase corporate tax rates substantially and still be the lowest in Canada," he said.
The Heritage Savings Trust Fund was not immune to the turbulent financial markets. It suffered a second quarter loss of $134 million. As of Sept. 30 it had a fair value of $14.7 billion.
As part of the forecast the finance department has now changed its projections for energy prices. The department now expects a barrel of oil to average $89.50, which is 10 cents higher than in the spring budget, but $8.35 lower than its August prediction.
Scott Hennig, Alberta director of the Canadian Taxpayers' Federation, was unimpressed with the update and any rumination on new taxes. He said the government needs to simply get a handle on its spending if it wants to slay the deficit.
"They are trying to make you believe that there is some sort of noble cause for them to be raising taxes when in reality they have blown their spending through the roof," he said.
