Premier Jim Prentice told Albertans on Wednesday that they need to wake up and face a world of low oil prices, as his Finance Minister announced there would be a 9-per-cent cut to government programs in a budget expected next month.
With the province now forecasting that the price of oil will stay near where it is today for the remainder of the fiscal year, in the range of $51 a barrel, Alberta is facing a budget deficit exceeding $7-billion unless action is taken.
"We all need to be living in the real world and understand the consequences of what's going on around us," Mr. Prentice said. "We will all need to do a lot more with a lot less."
Critics responded to the impending cuts by saying that the province's economy and Albertans will suffer.
In an afternoon news conference at the Alberta Legislature, Finance Minister Robin Campbell explained that the province would still be looking to run small deficits in the coming years. To keep the deficits manageable, the government would need to cut 5 per cent of program spending in a spring budget. However, by not matching inflation and the province's population growth, estimated at 3.8 per cent together, the full cut would be in the neighbourhood of 9 per cent.
While the government says it wants to protect the province's health and education budgets, both of which together represent 61 per cent of government spending, Mr. Campbell's press secretary didn't rule out cuts for those sectors. However, if the government were to leave health and education untouched, the rest of program spending would face cuts of 17 per cent to ensure the same level of savings.
"We're focused on protecting core services and looking for efficiencies in government, but everything else is on the table," Kevin Zahara told The Globe and Mail.
The decline in oil prices since the summer has forced a 17-per-cent decline in the province's revenues. So far, Mr. Prentice has ruled out raising corporate taxes, energy royalties or introducing a provincial sales tax.
With the Conference Board of Canada and CIBC warning that the province's economy could contract over the coming year and see large increases in unemployment, Mr. Prentice has conceded to running several deficits and vowed to not make deep cuts that would trip the province further into recession.
The size of the announced cuts didn't come as a surprise to Todd Hirsch, the Calgary-based chief economist of ATB Financial. "They've got a big gap to cover and $7-billion is a big hole for a province the size of Alberta to fill. However, a cut of that size will be unpleasant for a lot of people," said Mr. Hirsch.
Forecasts from ATB Financial have so far projected that oil would rebound to around $65 a barrel by the end of the year. While the government might be preparing for a worst-case scenario, Mr. Hirsch said that his organization could revise the province's growth to nothing if the government's latest forecast of around $51 holds.
Mr. Prentice has said that the wages of teachers, nurses and civil servants are unsustainable and has called for concessions from the province's public-sector unions.
Throughout 2015, Gil McGowan, the president of the Alberta Federation of Labour, has been meeting with government officials to discuss the coming budget. He said that until Wednesday's announcement, he only expected spending freezes.
"The Finance Minister's comments came as a big shock. He's talking about deep cuts that will dramatically impact the quality of public services in Alberta," said Mr. McGowan. None of this was mentioned in the many meetings we've had with the government over the past month-and-a-half."
Due to Alberta's fast-growing population, hospitals and schools in the province's two largest cities are crowded. In Calgary, many families bus their children across the city due to the lack of places at local schools. The province's opposition has said that Wednesday's cuts would be devastating to the province's families.
"The Premier is quick to make major cuts to services that Alberta's most vulnerable people rely on and yet he refuses to consider raising corporate taxes," NDP Leader Rachel Notley wrote in a statement. "This government has squandered our unprecedented wealth and now they are making Alberta families pay to clean up its mess."
Also on Wednesday, Mr. Prentice overturned a decision made by a legislative committee the previous day to restore $546,000 in funding cuts made to the province's Auditor-General. The Premier said there was no new money for spending.