In a season of restraint, Alberta opts to spend

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Faced with plunging revenues from its struggling mainstay, the oil and gas sector, the Alberta government is forging ahead with another blockbuster deficit as it moves to increase spending in a time of continued financial hardship.

The province detailed plans Tuesday for a $4.7-billion deficit in its 2010-2011 budget year, as its bid to keep up spending on health care and education - without raising taxes - causes it to overspend revenues by 15 per cent.

Alberta is the second province to provide a detailed look at the year ahead after New Brunswick tabled its 2010 budget late last year. As such, it has provided an early indication that glimmers of a national recovery have not yet lifted the country out of its current economic malaise, nor lessened the financial pressure on even Canada's wealthiest province.

"These are difficult times, and difficult times call for difficult choices," Alberta Finance Minister Ted Morton said.

But in a place accustomed to a wildfire economy and annual windfalls, provincial politicians have discovered that weaning themselves from spending has proven the most difficult choice of all. That has been especially true as the ruling Conservative party finds its tenure on shaky ground in the face of both higher unemployment figures and a potent political threat from the nascent Wildrose Alliance Party.

Mr. Morton was unapologetic about the province's 5.6 per cent growth in operating expenses, which will be covered by a modest $423-million revenue increase and a raid on the savings Alberta accumulated in the years of surging oil and gas prices. Over the next three years, the province will drain $12.2-billion from its rainy-day fund, leaving it nearly $3-billion in debt. That comes in direct contradiction to calls from policy analysts and the Canadian Taxpayers Federation, both of which have called for Alberta to cut annual spending by about $5-billion to have it fall more in line with other provinces.

"A lot of people want to have it both ways: stay out of deficit but don't make cuts," Mr. Morton said. "I can tell you, you can't have it both ways. We've chosen to make cuts in some areas and increase spending on others to protect essential services."

But the numbers make it clear that the province, which has traditionally relied on energy revenues to bail it out of financially tough spots, has opted for spending over cutting.

Rather than lop $2-billion from spending, as it pledged to do last year, the province managed to trim $1.3-billion and 795 jobs. And rather than use those savings to reduce its deficit, it instead raised total spending by $1.7-billion, most of it going to a massive health budget increase.

Even with an unexpected $1.6-billion gain from its investments - primarily from a huge rally in its energy savings kitty, the Heritage Fund -- Alberta now expects to post $3.6-billion in red ink in the current fiscal year. It is predicting a further $4.7-billion deficit next year, nearly double what it had previously forecast for 2010-2011.

"See if Albertans support longer waiting lists, no roads, 60 people in the classroom," said Treasury Board President Lloyd Snelgrove, as he defended the higher spending.

And the deficit forecast may also prove to be optimistic, since the province's numbers don't take into account changes Alberta is considering to its royalty formula. Energy revenues are one of Edmonton's most important budget items, and an oil and gas competitiveness review, which is expected to cut royalties and therefore provincial income, won't report until early March. Mr. Morton argued that those cuts should spur investment, which would then boost both personal and corporate taxes. But he admitted that royalty changes could "swing [revenues]down or it could swing them up."

Alberta is standing by its forecast return to budget surpluses in three years, although that is based on the assumption that oil sands production will grow faster than industry expects and wages will climb at an extraordinary pace. According to government estimates, a person making $100,000 today will be making $125,000 by the end of 2013. Slower wage growth could reduce revenue from personal income tax, the single-largest source of cash for the province.

Still, Alberta is plowing ahead with $7.2-billion this year in spending on roads, schools and hospitals - the second-highest level in Alberta history.

"Thanks to past fiscal prudence and accumulated savings, we do not have to make deep cuts," Mr. Morton said, as he forecast 2.6 per cent economic growth this year and the creation of nearly 40,000 new jobs by the end of next year.

The province is, however, paring down the infrastructure grants it give municipalities and trimming spending across 15 government departments, including housing, children and youth services, advanced education, community spirit, tourism and wildlife services. It will cut nearly 800 positions, but since many are currently vacant it only it expects to lay off 250.

It is also hiking fees for camping, cottages and some outdoor activities.

Though Mr. Morton called it "a fair budget" that singles out no group, the province went to great pains to avoid hurting the energy sector, whose recent travails have hit both provincial fortunes and political goodwill for premier Ed Stelmach's government. Alberta boosted energy department spending by 12.3 per cent, cut environment spending by 5.4 per cent, and stuck by its $2-billion commitment to carbon capture and storage, a technology that will help green its oil sands.

The biggest winner, however, was the province's health department, which will see a 16.6 per cent increase in funding. Much of the money will go to filling a debt hole created by underfunding in previous years, but Alberta - whose per capita health costs are already the highest in the country - is also boosting the annual budget by 6 per cent over each of the next three years. That money will go to raising doctor pay and buying more specialty cancer drugs.

Agriculture and the homeless, meanwhile, were hit. The province is eliminating a revenue insurance program to farmers and trimming agriculture income support and crop insurance. It's also slashing nearly a fifth of its housing budget.