EDMONTON - 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 impact 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."
Alberta took bragging rights in 2004 by declaring the province debt-free after wiping out roughly $25 billion in debt with windfall energy revenues. But the end of the latest energy boom forced Stelmach's government to record its first deficit in 15 years in the fiscal year that ended March 31.
Now the government is projecting at least five deficit budgets in a row, which will leave Alberta with billions of new debt.
"Paying off our debt was the smartest thing we ever did," said Hennig. "That resulted in interest savings that they can reinvest or cut taxes with."
Political analyst Keith Brownsey says the Tories have such a large majority with 71 of Alberta's 83 seats that they can likely survive voter angst over tax increases and public sector job cuts. But he says there's a limit to Albertans' patience with Stelmach's administration.
"To have a deficit of $6.5 billion to $7 billion is simply unheard of in this province," said Brownsey, a political science professor at Mount Royal College in Calgary. "Politically, this could be very damaging to the Conservatives."
"This government looks like it's stumbling and doesn't know quite what to do in this economic decline."
Alberta's opposition parties are pouncing on what they see as fiscal miscues by the Tories. New Democrat Rachel Notley says even Albetans who've been willing to give the Tories every benefit of the doubt are likely becoming skeptical.
"These guys don't know what they're doing and so there's a reason to be concerned," said Notley. "Even with a record deficit, they're not backing off some of their more ridiculous spending proposals."
Notley has repeatedly condemned the government's plan to spend $2 billion on carbon capture and storage projects -- Alberta's primary method for reducing emissions that cause global warming.
"We all know about that bumper sticker that said, `Please God give us another oil boom and we won't piss it away again.' But clearly that money is gone. The government pissed it away again."
Liberal Opposition Leader David Swann said the new deficit projections are "staggering" considering that just a year ago the government was projecting a near-record surplus of $8.5 billion before energy prices began to tumble.
"We're going to see front-line service cuts in health care and many of the public services that we've come to expect," said Swann. "We are going to be facing real pain and it's because of an outrageous mismanagement of our primary resources."
