Alberta budget – riches to rags
Amazing what less than a year and a 2/3rds drop in the price of oil can do to a province.
In August 2008, I wrote about how much money Alberta had – including the infamous “unallocated savings” line on their budget update.
Now they are projecting a $4.7 billion dollar deficit.
Although the province has accumulated 17 billion dollars in a separate fund for just this purpose (i.e. weathering the storm of low oil prices), the rate that they will be going through it is frightening.
While the times were good, the government was expanding, and cutting that expansion is now apparently unfathomable even when the corresponding revenues to sustain such spending disappeared. The only thing that will be bailing out this government is higher oil prices, which remains to be seen.
The Stelmach administration has made some heavy strategic errors while in office and Alberta will be worse for it. Relatively speaking to the rest of the country, however, Alberta is still in excellent fiscal shape in terms of the sheer volume of assets available on its balance sheet.
BC, by comparison, is not facing such wild swings in its fiscal balance since its economy is more diversified – natural gas royalties eclipsed forestry revenues a couple years ago as the primary natural resource revenue, but as natural gas prices have slipped to multi-year lows, the province’s revenue stream has also slipped.
Governments across the country, however, have to realize that spending has to be kept in line with revenues, otherwise the debt will keep on accumulating until Mr. Market pulls the plug on everybody by demanding huge rates of interest. When this happens it won’t be pretty.