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Alberta's oil sands at dusk.Kevin Van Paassen/The Globe and Mail

Alberta sees its rebirth in an age of $100 oil and a surging dollar, and is confidently projecting another energy boom that would drive a return to surplus and claim the province a spot at the forefront of Canada's economic recovery.

The province has been a shadow of its former self since the global recession and the collapse of natural gas prices sunk revenues and triggered major deficits.

It now hopes the tides will soon turn. Royalties from conventional oil and oil sands bitumen are already outpacing expectations, GDP is expanding at about 3 per cent annually, and the province's annual budget projects revenue from oil sands royalties will double in three years to more than $7-billion.

"Growth has returned to Alberta," Finance Minister Lloyd Snelgrove said on Thursday after tabling the province's annual budget.

But opposition leaders and critics are calling the projections rosy. Even if things go to plan, the debt-free province will have burned through nearly all of a $17-billion rainy day fund by the time it's back in the black, projected to be in the 2013-2014 fiscal year.

The coming year carries a total shortfall of about $6-billion - a $3.4-billion deficit with an addition $2.7-billion in capital projects pledged in this budget but amortized over several years. Mr. Snelgrove said the infrastructure projects were too important to delay.

"Is it ideally what we would like? Of course not. But is it practical and is it right for today? Absolutely," he said.

The budget projects the average price of a barrel of oil will be $99 by 2014 ($5 more than financial advisers' estimates), and oil-sands production will jump 45 per cent to 2.35-million barrels per day.

That figure is more than four times the province's projected total of conventional oil. Natural gas, which once carried the province's fortunes, is projected to generate only $1-billion in royalties in the coming year.

"I think most of us knew the potential of the oil sands. … We've maintained our spending into that region so that industry can locate there and continue to develop," Mr. Snelgrove said.

While production soars, however, environmental monitoring won't. Alberta Environment funding for monitoring, science, reporting, compliance and enforcement work will increase over three years by only 1.4 per cent, according to the budget.

The projections were made before the price of oil spiked this month amid unrest in the Middle East and North Africa. If the price stays high, royalties could come in higher than expected for Alberta. Mr. Snelgrove hinted he thought that may be the case, saying "we could be having a very different conversation next year."

The deficits that dominated Alberta over the past three years changed the face of the province, and helped pave the way for a new right-wing party, the Wildrose Alliance. It is now in a polling heat with the ruling Progressive Conservatives, largely by criticizing provincial spending.

The government has its "fingers crossed and [is]hoping for increased royalties as the best-case scenario" while "vaporizing our saving accounts," Wildrose Alliance leader Danielle Smith said, echoing the sentiments of many voters in the province who are fundamentally opposed to deficits.

This year's budget also projects a return to surplus a year later than was forecast last year.

"That's the only way they can balance the budget - by making wild projections for the future," said Scott Hennig, director of the Alberta wing of the Canadian Taxpayers Federation.

Mr. Snelgrove blamed a sharper-than-expected decline in royalties and personal income tax returns - people are earning less in salary and investments.

"Quite honestly, we just found the recession was deeper, was broader. Our prices for commodities were less. Our corporate taxes and personal taxes dropped more than we could have predicted," the minister said.

The province introduced a one-time royalty reduction as a drilling incentive last year. The program expires in March, and will cost Alberta $1.6-billion in foregone revenue - more than double the projected cost. Critics have long complained that Alberta's royalty rates were already too low.

Ministry staff said in briefings on Thursday that it's hard to say whether the price of oil or government incentives have sparked the turnaround.

"There isn't any logical argument for those royalty programs stimulating the sector," retorted Regan Boychuk, a researcher with Edmonton's Parkland Institute think-tank.

The budget itself avoided deep cuts and held spending growth to 2.2 per cent. Nine of 25 ministries and departments took small budget decreases (cutting, for instance, English as a second language training), although the province's health board and education department remain untouched.

"It could have been a lot worse in these times," said Indira Samarasekera, the president of the University of Alberta, who called the budget "wise."

There was no income tax hike, although service fees for vehicle registration and land transfers will increase. Mr. Snelgrove also said Alberta won't consider bringing in a provincial sales tax.

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