Alberta bites budget bullet

The slump in commodity prices and government land sales has the Alberta government reeling, forcing it to disclose that the 2012-13 deficits could reach C$3 billion, triple what was originally forecast.

But Finance Minister Doug Horner pledged he will meet his promise of a balanced budget by 2013-14.

Ordering immediate steps to control spending by C$500 million in the current fiscal year, he said “Albertans have clear expectations that we will live within our means, so departments will manage with the budget they were allocated.”

“We can’t control the world events that impacted our revenue, but we can take steps to stay on course,” Horner said.

The government announced a drop of C$389 million in revenues to C$9.31 billion in the first quarter of 2012, mostly resulting from lower-than-budgeted crude oil prices, which averaged US$93.62 per barrel compared with the forecast US$99.25.

Horner’s department has projected crude prices will average US$97.30 for the second quarter.

For every US$1 annual drop in crude prices, Alberta’s revenues decline by C$220 million.

Returns from land auctions are expected to drop to C$1.07 billion in 2012 compared with a record C$3.54 billion in 2011.

However, Horner said the economic indicators point to a “promising long-term future for Alberta. We are leading (Canada) in housing starts, have the lowest unemployment rate, the highest job growth and maintain the lowest overall taxes.”

Patricia Mohr, Scotiabank’s commodity analyst, said Alberta will continue to face lower crude prices as long as there is no access to Asian markets through pipelines to the British Columbia coast.

She estimated the 2012 discount on Canadian crude has been about C$6 per barrel, costing producers C$3 billion.

“To guarantee world prices for the crude, we do need to tap the faster growing markets in Asia,” she said.

—Gary Park