Skip to main content

An oil pumpjack sits idle north of Edmonton. The oil price plunge could see Alberta run a $7-billion deficit this year.JASON FRANSON/The Globe and Mail

Trouble seems to be everywhere in Alberta as collapsing oil prices have led to job losses and opened a yawning budget deficit. Doubts are being raised about whether the province can maintain the so-called Alberta Advantage, the mix of low taxes and rich public services that have helped fuel Canada's economic engine.

The speed with which Alberta's economic fortunes have been thrown into reverse has been unprecedented, Premier Jim Prentice says. Oil prices have dropped by more than 60 per cent since June.

In the four months Mr. Prentice has been in office, Alberta has gone from Canada's fastest-growing province to one that could fall into recession. Projections of fat surpluses have dissolved and Alberta's deficit could top $18-billion over the next three years.

"I'm a premier who has inherited a problem," Mr. Prentice told The Globe and Mail by phone from Texas on Friday. "The problem is the worst fiscal circumstances that my province has faced in the past 25 years. They also came upon us with an immediacy that no one has ever seen before."

Mr. Prentice will have a $7-billion deficit over the next year – about 17 per cent of the province's revenue disappeared due to the drop in oil prices.

"We're providing the highest-cost public services in Canada, by a significant margin. We have the best of everything. Yet at the same time, we have had the lowest taxes on every front. Alberta has only been able to do this by drawing down $10-billion annually of oil revenue. That revenue stream is gone," Mr. Prentice said.

"Now we need to separate what we need to have from what we want to have."

While calling for the province's public-sector unions to reopen contracts, the Premier said on Tuesday that part of the solution could be a provincial sales tax.

Mr. Prentice says he does not support such a tax, but is looking at whether Albertans would favour a revenue source that is not tied to the price of oil.

Albertans pay the lowest taxes in Canada. The province has a flat 10-per-cent income and corporate tax, no sales or payroll taxes, the lowest gasoline taxes in the country and no health premiums.

Some have suggested Mr. Prentice introduce tax brackets so that those with higher incomes pay more. Higher gas taxes and introducing health premiums are also being mulled.

No single measure could replace the lost revenue. Alberta will have a deficit.

"We've been warned by economists that trying to deal with this too quickly could trip the province into recession and make matters worse. There could be a need to operate at deficits that are acceptable," Mr. Prentice said.

While the volatile oil market has dropped several times before, the current situation has been made worse by the depressed natural gas market. Once a mainstay of Alberta's economy, gas provided $6-billion for provincial coffers as recently as 2007. Royalties have fallen to about $900-million.

Energy giant Suncor announced on Tuesday that it will axe 1,000 jobs in its oil sands operations. Alberta's energy producers have cut $5.2-billion from their budgets for the coming year.

The Premier was in Freeport, Tex., on Friday to celebrate the opening of two pipelines to the massive refinery complex on the U.S. Gulf Coast that link to Alberta's oil sands. According to Mr. Prentice, the new pipelines have already had a financial benefit.

With oil sands producers paying some of the highest costs in the industry to produce a barrel of crude, the International Energy Agency scaled back its expectations for Canadian average production in 2015 by 95,000 barrels per day, but still sees a small increase compared with 2014.

"Companies have been taking an axe to their budgets, postponing or cancelling new projects, while trying to squeeze the most out of producing fields," the Paris-based agency said.

Federal Natural Resources Minister Greg Rickford, who joined Mr. Prentice in Texas, said the federal government is "keeping a close eye" on the market fallout, but was upbeat about the impact of expanding capacity to the U.S. Gulf Coast.

"There's no question the federal treasury is solid, but the revenues from oil will narrow our flexibility somewhat," he said.