Alberta Premier Prentice warns deep cuts necessary to avoid fiscal ruin

Share

In advance of a budget he vows will usher in generational change, Alberta Premier Jim Prentice is warning that the worst of the current oil crisis has yet to hit his province.

The Premier said the government's planned 10-year fiscal road map must address an uncomfortable reality: Alberta will burn through almost $22-billion in savings in less than three years unless immediate measures are taken to cut expenditures, raise non-oil revenues and attend to systemic issues that have haunted the provincial economy for years.

Mr. Prentice made his comments ahead of an expected spring election, in which he hopes to receive a mandate to push forward with several controversial ‎policy decisions.

In an interview at the government's offices in Calgary, Mr. Prentice told The Globe and Mail that the province is forecasting the price of oil to rebound to about $80 (U.S.) a barrel within three years (it closed Tuesday at $50.52), but even at that level, there will need to be fundamental changes to Alberta's public finances to tackle problems previously ignored by Progressive Conservative governments.

"The difference is I'm going to deal with this," he said. "Enough is enough."

Alberta has a cash contingency fund of about $6-billion (Canadian) that will be spent within six months if the government does not quickly change the way the province's finances are being managed, Mr. Prentice said. He said the same would then apply to the nearly $16-billion in the province's heritage fund; it would be gone in two years.

"Along the way we'll lose our triple-A credit rating … and we'll have basically destroyed all of the savings that Alberta took 50 years to accumulate and we'll be back into racking up debt. That is not happening on my watch."

Expectations of a spring election have been growing in the wake of the December defection of Wildrose leader Danielle Smith and several of her colleagues to Mr. Prentice's Progressive Conservatives. The Premier has all but said there will be a vote on his 10-year fiscal manifesto.

Mr. Prentice said the oil sands should remain relatively unaffected by the recent downturn in prices. It's conventional oil producers who will soon be shutting down some operations and laying off workers. This is the standard roller-coaster effect that fluctuations in the oil market create, said the Premier, who estimates he's witnessed six such cycles in his recent memory.

"Clearly, you can't build hospitals and schools and run universities and colleges when your public finances are saddled up to a single commodity that's price is volatile," he said.

"We started to take a higher and higher percentage of Alberta's energy revenue and channelling it into subsidizing the cost of services for this generation of Albertans and it reached a point where … we were essentially taking every cent of our oil revenue and subsidizing current services and taking all of the interest off of the heritage fund and subsidizing current services."

Eventually, he said, it reached a point where Tory governments started to reach into the core of the heritage fund itself just to pay operating expenses.

Mr. Prentice said repeatedly Albertans have indicated they are prepared to shoulder "part of the burden to be part of the solution," but so far he's not said how he'll take them up on their offer. While ruling out a sales tax as well as changing certain other levies now in place, including the 10-per-cent flat tax on income, the Premier suggested there were still other opportunities on this front that could be tapped. He refused to be more specific.

One area that is certainly in his sights is public-sector spending, including wages. The Premier said there is a $2.6-billion labour cost escalation built into the budget for the next three years. He highlighted health care as an example of where costs have gotten out of control.

"In the last 10 years the population of Alberta has increased 25 per cent while health-care costs have gone up 100 per cent, from $8-billion to about $17-billion," he said. "Annually compounded, that's a growth rate of 7.4 per cent and that's not sustainable."

He has already indicated that the province will be looking at success B.C. has had in reining in public-sector wages. When it was pointed out that Alberta has not demonstrated the same appetite for the kind of showdowns and strikes that B.C. governments have endured in the name of low-cost settlements, Mr. Prentice said: "To the extent we have secured labour tranquility here by overpaying what everyone else in Canada has been paying is no longer an option."

Mr. Prentice said the government will be looking for concessions from public-sector unions as soon as possible. If they aren't prepared to reopen existing pacts, then the matter will be addressed when they expire. And he held out the possibility of layoffs should the government not get the reductions it's looking for.

"We will make the structural changes, we will make all the tough choices, Alberta's finances will be on a completely different trajectory going forward," he said.

But not likely before Albertans have a say in it all.