Alberta Counts on Oil to Close Budget Gap Ahead of Election

Alberta, Canada’s third-largest economy, is counting on rising oil prices to pay for more spending on education and health care as the government maintains its current tax rate ahead of a provincial election.

The western province, which is home to the world’s third-largest oil reserves, forecast a shortfall of C$886 million ($890 million) in the fiscal year ending March 31, returning to surplus the next year, Finance Minister Ron Liepert said yesterday. The economy is forecast to grow 3.8 percent in 2012.

“Considering the impact the global economic slowdown is having in other jurisdictions, Albertans are very fortunate to be experiencing such growth,” Liepert said in a speech to lawmakers. The government is planning no new taxes or increases to current tax rates, he said.

Alberta, which relies on royalties and taxation of its oil and natural gas industry for about one-third of its revenue, has one of the fastest-growing economies and populations in Canada. With Exxon Mobil Corp., Suncor Energy Inc. and rivals making investments of about C$20 billion annually in the oil sands, the government is struggling to keep up with maintaining and expanding hospitals, universities and roads.

“Government and politics today is all about allocation of resources and squabbling over those resources,” said Keith Brownsey, associate professor at Mount Royal University in Calgary. “They want to portray themselves as good managers and that they’re cautious with our money. But they need to have a steadier stream of revenue than what they have now with oil.”

Oil Prices

The finance ministry projects an average price of $99.25 a barrel for West Texas Intermediate crude in fiscal 2012-13, rising to $106.25 the following year. Crude for March delivery yesterday gained $1.13 to $99.84 a barrel on the New York Mercantile Exchange, the highest settlement in three weeks. Prices averaged $95.11 last year. Natural gas will average C$3 a gigajoule, the finance ministry estimates. Natural gas for March delivery rose 2.9 cents, or 1.2 percent, to settle at $2.477 per million British thermal units on the New York Mercantile Exchange yesterday.

Higher oil prices have helped boost profit for Alberta-based oil companies. Suncor on Jan. 31 said fourth-quarter net income rose 14 percent to C$1.43 billion. Canada’s daily oil-sands output is expected to more than double to 3.5 million barrels in 2025, from 1.4 million in 2010, according to the Canadian Association of Petroleum Producers.

Premier Alison Redford, who took over as provincial leader in October, holds 67 of the 83 seats in the provincial legislature. She must call an election by 2013 and will probably ask voters to go to the polls as early as this spring, Mount Royal University’s Brownsey said.

Boosting Spending

Alberta will spend C$16.5 billion in public infrastructure over the next three years, including boosting outlays on highways, schools and municipal public transportation. The operating budget for healthcare will increase 7.9 percent to C$15.9 billion in fiscal 2012-13.

The western province has C$14.3 billion in outstanding bonds, according to Bloomberg data. The provincial treasury is scheduled to pay back about C$2.1 billion this year. There will be no new borrowing this year, finance ministry spokeswoman Robyn Cochrane said as the province plans to cover the shortfall by drawing down reserves.

The government said it will review its dependence on energy revenue, a plan the Calgary Chamber of Commerce applauded. “The province relies too heavily on volatile royalty revenue,” said Ben Brunnen, the group’s chief economist, in a statement. “Alberta needs a new fiscal framework that caps the amount of resource revenue used, restructures the Sustainability Fund, and commits to real savings into the Heritage and Savings Trust Fund.”

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