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Alberta Premier Jim Prentice speaks during a news conference as Finance Minister Robin Campbell, left, looks on in Edmonton on Feb. 11, 2015. THE CANADIAN PRESS/Dean BennettDean Bennett/The Canadian Press

On the same morning as Toronto police convened the media to reveal a mysterious hole in the ground, Alberta Finance Minister Robin Campbell was holding a press conference to map out the gaping hole in his budget. Little is known about who dug the trench in Toronto, but Alberta's twin culprits are easy to identify: collapsing oil prices, and a province that spent as if oil revenues were an endless gusher.

For the current fiscal year, the province is going to record a small surplus of $361-million. That figure is, unfortunately, ancient history. Fiscal year 2014-15 ends on March 31, which means the surplus largely reflects a time, way back in 2014, when oil prices were riding high, as was Alberta's economy. For the new year about to begin, Mr. Campbell says that, if a $50 oil price persists, the province is facing a "$7-billion hole."

Thanks to tanking oil, Alberta is expected to be the second-slowest growing province in 2015, ahead of Newfoundland and Labrador, recording growth of just 0.5 per cent, according to a recent TD Economics estimate.

Alberta's economy grew at roughly double the national average over the past three years; this year, TD believes it will grow at just one-quarter the rest of the country's pace. And unemployment will rise in Alberta, even as it continues to fall in most of the rest of the country. Canada won't be in recession; Alberta will be in something close to one.

The result is that expected $7-billion budget hole. To put it in perspective, Alberta's total government revenue this year is less than $45-billion. Canadian governments rarely face such a sudden drop in income.

If Mr. Campbell's guesstimate of the shortfall is right – and given the uncertainty around all prices, his guess is as good as anyone's – Alberta could chop its Ministry of Education, the second-biggest in the government, shut down every school in the province and fire every teacher, and still be in deficit.

But oil prices are not the only culprit in this story. For decades, Alberta has been a paradox: a low-tax, high-spending province, with the gap magically filled by oil revenues. Money from a non-renewable resource has been consistently treated as endless, stable and evergreen.

For example, last year the Alberta government spent just shy of $11,000 per Albertan on programs and services, according to an analysis by RBC Economics. Ontario, in contrast, spent $8,546 per person. Quebec spent $7,888. The numbers aren't perfectly comparable, because of differences in provincial accounting standards, but the broad strokes of the picture are hard to miss.

It's the same story on health spending, the largest item in every provincial budget. According to data from the Canadian Institute for Health Information, the government of Alberta spends 25 per cent more per person on health care than Ontario. That's equivalent to more than $4-billion.

And oil has also allowed Alberta to pair all of that spending with relatively low taxes. Other provinces have sales taxes and the HST; not Alberta. The province also has a flat income-tax rate, which means that many Albertans, particularly upper-income ones, pay lower taxes than in other provinces.

And then there's a carbon tax – which Canada's main carbon-producing province doesn't have.

In the long run, the circle has to be squared. There's no need for Alberta to balance the budget in 2015, though Premier Jim Prentice surely feels the pressure to do so. But over the next few years, whether or not oil prices rebound, spending and revenue have to be brought back into equilibrum. That can happen through lower spending. It can happen through higher tax revenues. Ideally, it should include bit of both.

No matter what happens to prices, oil and gas will remain at the centre of Alberta's economy. That's a blessing, not a problem. But Alberta has to budget in a way that relies less on oil. Prices are volatile, and what's more, the resource is non-renewable.

Wiser jurisdictions have long pursued a policy of saving and investing some of their one-time resource gains. Norway is the leader in this field, having built up a sovereign wealth fund worth more than $1-trillion. That's investing for the future, and turning today's windfalls into tomorrow's wealth.

Alberta, with fewer people than Norway and greater oil production, has an Alberta Heritage Savings Trust Fund worth a mere $17.2-billion. Alberta spent its good fortune, while Norway saved.