Government expecting extended oil slump

The provincial government is digging in for an extended period of low oil prices, says Energy Minister Frank Oberle. “We’re projecting that this will be two, three years before any reasonable recovery,” said Oberle, following a presentation at a Red Deer & District Chamber of Commerce luncheon on Monday. “We’ve got to plan for that kind of a time horizon.” That planning is underway now, as the Alberta government prepares to table its 2015-16 budget.

The provincial government is digging in for an extended period of low oil prices, says Energy Minister Frank Oberle.

“We’re projecting that this will be two, three years before any reasonable recovery,” said Oberle, following a presentation at a Red Deer & District Chamber of Commerce luncheon on Monday. “We’ve got to plan for that kind of a time horizon.”

That planning is underway now, as the Alberta government prepares to table its 2015-16 budget.

“There will be no frills; there will be no new programs; there will be cuts — as much as we can, outside of core services,” said Oberle. “Albertans will notice it, that’s for sure.”

The three-term MLA from Peace River, who assumed the energy portfolio in September, emphasized to his Red Deer audience how damaging sub-$50 oil is to government coffers. It’s expected to take a $6-billion to $7-billion bite out of revenues this year.

“That’s the equivalent to the entire education budget; it’s equivalent to one-third of the salaries of the entire public sector, including doctors and nurses and teachers.”

To help address this budgetary shortfall, the government plans to cut expenditures, said Oberle. This includes hiring for critical positions only, limiting expenses for travel and training, and cutting spending on goods and services.

Higher oil and gas royalties are not on the table, he added, and Premier Jim Prentice has also made it clear that he does not want to introduce a provincial sales tax. But other taxes could be tapped for more revenue, said Oberle.

“There are fuel taxes, sin taxes on alcohol and tobacco, income taxes — the government collects revenues from a number of sources. We’re considering all of them.”

The province also has about $5.5 billion in its cash contingency reserve, and is in a good position to borrow money, he said.

It’s the only province that doesn’t currently have a net debt, and could borrow without jeopardizing its AAA credit rating.

Balancing the budget with spending cuts would do more harm than good, said Oberle, and potentially push the province into a recession.

“That would be irresponsible, especially with Alberta’s population rising so rapidly.”

The province’s population grew by 100,000 last year, pointed out Oberle, and that necessitates spending on infrastructure like schools and hospitals, as well as on government programs and services.

In the longer term, the Alberta government must reduce its reliance on energy revenues, he said. The province has no control over oil and gas prices, and due to its limited access to export markets faces a $20-a-barrel price discount on crude oil, relative to world prices.

Oberle said Prentice and his government have been working hard to develop improved pipeline access to coastal ports and refineries.

As for critics who say past governments have failed to diversify Alberta’s economy, Oberle challenges this assertion. Trade between Alberta and the other provnces has triples since 2005, he said, and shipments of manufactured goods to the United States have jumped during the past decade.

The value-added output of Alberta’s petrochemical, forestry and agricultural sectors is increasing, he added.

“We’re doing very well in diversifying, and cities like Red Deer and places like Nisku are leading the way.

“There’s more that we could do, and my department is looking at some opportunities, as are other departments.”

The Alberta government may look at incentives as a way to encourage investment in non-traditional revenue streams, he said. And the province’s low taxes should also continue to attract businesses.

“We continue to have the most competitive tax regime in the country, by far.”

If you were to apply British Columbia’s tax regime to Alberta, he said, it would extract an additional $11 billion a year. Adopting Nova Scotia’s tax structure would mean an extra $24 billion.

Ultimately, this province will emerge from the current economic turmoil and prosper, said Oberle.

“Alberta has been through this before and we’ll come out again. We have some very unique advantages that other provinces don’t have.”

hrichards@bprda.wpengine.com