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Alberta Forecasts C$1.97 Billion Budget Deficit

Alberta expects to post a sixth consecutive annual deficit as Canada’s wealthiest province seeks to pay for new schools, roads and hospitals amid dwindling revenue from oil sands and natural gas production.

The province, Canada’s fourth-most populous, will post an operational shortfall of C$1.97 billion ($1.91 billion) in the year that begins April 1, Finance Minister Doug Horner said today. That compares with an estimated deficit of C$3.9 billion in the year ending March 31.

Horner is reducing his forecasts for resource revenue this fiscal year and next by C$10.2 billion, or 12 percent of total revenue over two years. A 22 percent drop over the past six months for the price of Western Canada Select, Canadian crude that averaged $71.80 in 2012, has widened the gap relative to world oil prices and forced the government to find ways to make up for the shortfall.

“It’s no secret: we have our challenges,” Horner said in the prepared text of his speech. “Immediate, serious challenges that the budget speaks to.”

Alberta relies on royalties and taxation of the oil and natural gas industry for almost one-third of its revenue.

The fiscal plan is based on projections of 2.9 percent economic growth in 2013-14, and a forecast average of C$68.21 per barrel for the benchmark Western Canada Select, a blend of heavy oil produced from bitumen. WCS traded at $67.72 a barrel at 2:46 p.m.

Capital Spending

Alberta will borrow C$3.19 billion in 2013-14, and bring forward C$1.07 billion borrowed in 2012-13 to help pay for C$5.21 billion in capital spending, including 50 new schools, widening the highway to Fort McMurray, the oil sands boom town, and new health care facilities.

Premier Alison Redford promised in last year’s election more spending on education and health care, which is now at risk as government revenue from oil royalties plummets. The province needs to reduce its dependency on royalties from non-renewable resources like oil by lowering spending on health care and implementing a sales tax, Ron Kneebone, a University of Calgary economics professor, said in a March 4 interview.

Boom, Crash

“Energy booms are always followed by energy crashes,” said Kneebone, who has researched 20 years of Alberta budgets. “The government needs to say we’re going to wean ourselves off royalty revenue. Governments don’t usually do this until a crisis hits and then has to do something drastic.”

Redford’s Progressive Conservatives, which have held power since 1973, promised not to implement a sales tax in Alberta, the only Canadian province without one.

Investments worth about C$23 billion this year by companies such as Exxon Mobil Corp., Calgary’s Suncor Energy Inc. and rivals are contributing to a growing economy and population forecast to reach 5 million in the coming two decades from 3.7 million now. The finance ministry expects the population to grow by 100,000 this year.

The western province has C$16.6 billion in outstanding bonds, according to data compiled by Bloomberg, with about C$2.7 billion of that due in 2013. Alberta’s debt is rated AAA, the highest level, with a stable outlook by Standard & Poor’s.

Former Premier Ralph Klein eliminated Alberta’s deficit and debt in the 1990s. Subsequent governments have ramped up spending to keep pace with a growing economy and population. Health-care spending, the biggest expense for the Alberta government, needs to be tackled or else the province may return to the deficits of the 1980s when spending exceeded revenue by as much as C$6,000 per capita, Kneebone said.

Redford’s Progressive Conservative party on April 24 won a surprise re-election and renewing its majority mandate.

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