Alberta now facing $500M deficit due to dropping oil prices

Alberta Premier Jim Prentice says oil prices haveplunged so far so fast that this year's projected budget surplus
will now be a $500-million deficit.
And he says while his advisers expect oil to rebound slowly overthe coming years, the budget may remain in deficit until 2018.

"It's the most serious fiscal circumstance we've seen in ageneration in this province," Prentice said in an interview
Thursday.

"Things have turned so dramatically that we've gone from a$1.5-billion surplus in November to what looks like a $500-milliondeficit based on today's projections.

"And there's actually precious little we can do about that.We've been belt-tightening in government for the last quarter."

Oil prices, the lifeblood of Alberta's economy, have been in freefall since last summer, tumbling from US$100 a barrel to below US$50a barrel this week.

"It's like landing a 747 and you're coming in on the runway.We're in the last two months of the fiscal year. You can't eitherincrease your revenue or decrease your expenses in any meaningfulway," said Prentice.

The province predicted a barrel of West Texas Intermediate wouldaverage $92 a barrel this fiscal year ending March 31. That wasrevised to almost $89 in November as prices fell.

Each $1 drop in the average price over the course of a year coststhe province $215 million.

Plan is to budget for $65 barrel

Prentice said that in next year's budget the plan right now is tobudget for oil at $65 a barrel, but he said that would still mean a$6.7-billion drop in projected resource revenue.

He said the forecast average price for the 2016-17 year will be$75 a barrel, which would still leave a $4.9 billion deficit.

"The third year we should start to return to a balancedbudget," he said.

The problem, he added, will be if oil prices remain below the $50 a barrel mark for the long-term.

"If oil prices persist at sub-$50 per barrel, we essentiallyhave no oil revenue, and it opens up a revenue hole in Alberta'sfinances that approaches $10 billion," he said.

The premier said they are now looking at a combination of threeoptions: reducing expenditures, increasing revenue, and dipping intothe $5-billion contingency fund.

He said they'll use the contingency fund to cover off this year's deficit but otherwise everything is on the table.

Prentice declined to be more specific on the types of cuts orrevenue generation plans being considered.

In past weeks, he has said he won't impose a sales tax but hasrefused to rule out hiking corporate or income taxes or makingchanges to the tax structure.

He has also said the province needs more fundamentaleconomicchanges so that day-to-day spending is not hostage to swings in oilprices.

This year's budget also forecasts the debt for capital projectsto reach more than $11 billion.

Prentice said the latest numbers were crunched with the aid of anad hoc team of cabinet ministers struck before the Christmas break.

The committee, along with Prentice, is comprised of: FinanceMinister Robin Campbell, Health Minister Stephen Mandel, MunicipalAffairs Minister Diana McQueen, Energy Minister Frank Oberle,Infrastructure Minister Manmeet Bhullar, and Jobs Minister RicMcIver.