Alberta is bleeding red ink at a rate never before seen in the province’s history as the result of plummeting energy revenues and a leading economist says government job cuts or tax increases now appear to be a certainty.
Unless there’s a major turnaround for plummeting natural gas prices, the deficit could increase by nearly $2 billion, finance ministry spokesman Bart Johnson confirmed Monday in an interview.
Premier Ed Stelmach’s Progressive Conservative government had already made a gloomy projection in April’s provincial budget of a record $4.7 billion deficit. But the fiscal situation has gotten much worse.
“We will be amending the forecasts on gas prices when the first-quarter fiscal update is released at the end of August,” said Johnson, who conceded that current numbers suggest the deficit could end up in the $6.6 billion range.
Treasury Board President Lloyd Snelgrove has held three private meetings with 100 “stakeholder groups,” including unions, business leaders and health-care professionals to discuss the effect of this growing financial crisis.
Snelgrove cautioned months ago that government job cuts and tax increases could be in the works as he tries to cut $2 billion from the annual budget. But these cuts wouldn’t take effect until next year, so the bad news won’t likely be delivered until fall.
Economist Mike Percy has reviewed the numbers and confirms that Alberta’s deficit is heading into uncharted territory because natural gas prices are far lower than what Finance Minister Iris Evans projected in the budget.
“The deficit is likely to be at least $1.5 billion or possibly $2 billion greater than projected in the budget, contingent on what happens to gas prices,” said Percy.
The government will now have some very difficult choices to make in order to reduce spending and increase revenues and this will likely translate into job cuts, he said.
“At the end of the day, there’s no free lunch,” said Percy, the dean of the University of Alberta’s business school.
“You don’t have a lot options, it’s either reduce expenditures or increase taxes.”
Health and education will not likely be spared from these spending cuts, he said.
Alberta’s Tory government had anticipated a roller coaster of energy revenues, so it created several savings accounts that are now being triggered to stabilize revenues.
But Snelgrove has said he doesn’t want to drain these multibillion-dollar funds in a just a few years, so legislation that was designed to prevent the province from sinking back into debt was recently changed.
Scott Hennig, with the Canadian Taxpayers Federation, says running a deficit is never a good idea.
“We know that running up deficits just passes on the cost from one generation to the next,” said Hennig. “You’re asking future taxpayers to pay for projects that they may never enjoy.”