Booze, gambling Alberta’s new cash cow

Gary Park

For Petroleum News

Alberta Finance Minister Ted Morton has enjoyed one of those rare moments for someone in his position: Reporting that the province’s 2010-11 budget is right on track after the first three months.

Amazing, given that spending rose by C$609 million to battle floods, forest fires and mountain pine beetles.

Offsetting the bad news was a C$602 million increase in projected revenues over the same April-to-June period, largely because of land sales to oil and natural gas explorers who have been enticed back to Alberta by the government’s royalty adjustments.

The net result is a mere C$7 million addition to the forecast deficit of C$4.76 billion.

What troubles many observers is that liquor and gambling are now rivaling conventional oil and natural gas as the province’s leading sources of revenue.

Combined, the two vices (some might say pleasures) are expected to generate C$2 billion in the current fiscal year — C$1.3 billion from gaming and lotteries and C$700 million from liquor. Conventional oil and gas are projected to contribute C$1.9 billion each.

But, rather than get drawn into a debate on the virtues and merits of where the government’s money is coming from, Morton was more content to take credit for the budget performance. “It’s good planning,” he said. “We’ve taken a balanced and cautious approach.”

Some warning signals

“We are an export-based economy,” he said. “So, if the economic recovery stalls in the United States and the rest of the world, Alberta’s economy and government revenues will be negatively affected … and these changes are largely beyond our control.”

If the budget projection is achieved, the government will dip into a special “sustainability” fund, set up to ensure it does not have to break a law and deliver a deficit. As a result, the fund is forecast to drop in value to C$11.2 billion from C$14.9 billion and is expected to face further raids until 2012.

For now, Morton does not accept suggestions that the latest round of oil and gas royalty cuts have traded off long-term revenue decreases for a short-term windfall.

Instead, he argues, the lower royalties will generate greater activity over coming years and generate more revenue.

To help stabilize Alberta’s revenue flow, Morton is coming under pressure to join Canada’s other nine provinces and introduce a provincial sales tax, or PST, which would prevent the economy from getting whiplashed by gyrations in oil and gas prices.

Unlike his predecessors, he did not reject that notion out of hand, suggesting that “looking at all the options is a good idea.” But he passed the “looking” job to the Premier’s Council on Economic Strategy, which is developing an economic plan for the next 30 years.

Premier Ed Stelmach wasn’t even giving his hand-picked advisers the time to delve into that issue. So long as he is leader there will be no PST (which some say stands for political suicide tax), he declared.