‘Bitumen bubble’ equals $6B revenue loss

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Less-than-forecast royalty revenues point to program, services changes

A “bitumen bubble” has blown a $6-billion hole in the province’s revenue projections that will lead to significant changes to this year’s budget, Premier Alison Redford warned in a recent televised address.

“As we prepare this year’s budget, it means we have to make some very difficult decisions,” she said during the eight-minute, pre-recorded address that cost the government $55,000 to air.

Spruce Grove-St. Albert MLA and Minister of Finance Doug Horner said it has not yet been determined which government programs and services will change. The budget is to be delivered on March 7.

At this time last year, the government projected $13.4 billion in annual resource revenue based on a $99.25 per barrel cost of oil. At the time, the North American benchmark price for oil was set at $100 per barrel. The actual cost averaged more than five per cent lower than projected, at just $94.

“A province as prosperous as Alberta should not be as susceptible as we are to swings in the price of oil and gas,” Redford said.

She said the province should be getting fair value for its resources and, to do this, it must enter new markets such as the Gulf Coast and Asia.

Wildrose leader Danielle Smith criticized the broadcast for failing to implement a plan for balancing the budget, instead offering what she described as empty platitudes and meaningless promises.

Rob Anderson, Wildrose finance critic, said the fiscal woes are more a result of government spending than limited revenues.

“Alberta continues to have a revenue stream other provinces can only dream of,” he said. “There is one reason and one reason only why we are in this situation today: year after year of PC mismanagement and wasteful spending have finally caught up to us and Premier Redford lacks the backbone or competence to fix it.”

Despite the fiscal challenges, Redford vowed to continue investing in priority areas, such as education, infrastructure and health care. She said she would not take an axe to government spending or take the “easy way out” by raising taxes.

“In this year’s budget, we’ll hold the line on our spending and we’ll live within our means,” Redford said. “While it may sound relatively painless to hold our overall spending levels, it’s not. As a result, some programs and services will change.”

Horner said the current fiscal reality means each government ministry will evaluate every line item when preparing its budget.

“We are looking at every expenditure we make with a very critical eye,” he said. “We’re looking at our house before we’re looking at your house.”

Stephen Khan, St. Albert MLA and minister of advanced education and technology, said budget numbers for his ministry are considerably different than they were just two months ago.

This belt-tightening across government could force the province to delay a number of campaign commitments.

Redford campaigned on a promise to construct 50 new schools across the province, with a price tag of $250 million. She vowed to create 140 Family Care Clinics province wide over a three-year period, costing $3.4 billion. This was to be taken from the existing $3.9 billion budgeted for primary health care.

Khan and Horner both said these promises will likely be kept, but noted they could face delays.

“Our intention is to maintain the commitments that we made to Albertans about what Alberta’s going to look like in 2032 when we have five million people,” Horner said.

During the Address to Albertans, Redford stated the province would begin investing a portion of resource revenue into the Heritage Savings Trust Fund, something that hasn’t been done for more than 25 years.

Redford also announced plans to convene Alberta’s first annual economic summit in February. It is intended to stimulate discussion about Alberta’s fiscal future with input from industry experts, business and not-for-profit leaders and academics.

“This summit will not solve everything in one day, but it will allow us to continue the conversation,” she said.

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