October 27, 2015 / 9:40 PM / 2 years ago

Alberta plans hefty spending to revive battered economy

CALGARY, Alberta (Reuters) - The Canadian province of Alberta will post a C$6.1 billion ($4.6 billion) deficit this fiscal year and borrow heavily to fund infrastructure in a bid to revive an economy hammered by low oil prices, its left-leaning New Democratic government said on Tuesday.

Alberta, whose oil sands are the largest source of U.S. crude imports, will continue to run deficits until 2019/20 and will spend C$38 billion on a capital plan investing in infrastructure, as well as health and education projects over the next five years.

The province will empty its contingency fund by next year and start borrowing to fund operations in 2016/17, a first since 1993/94. It estimates total debt will increase to C$36.6 billion, 10 percent of Alberta’s nominal gross domestic product, by fiscal 2017/18.

Last year Alberta posted a surplus of C$1.1 billion.

It is the first full budget for the New Democratic Party government, which swept to power in May after 44 years of Conservative rule and inherited a province struggling to cope with plunging global oil prices.

More than 35,000 oil and gas workers have been laid off this year as companies slash spending, according to industry estimates, and the government expects the economy to contract 1 percent in 2015.

Faced with a 69 percent drop in oil and gas royalty payments this year to C$2.8 billion from C$8.9 billion in 2014/15, the province is electing to spend in a bid to stimulate growth rather than cut back on health and education services as proposed by the previous Conservative government.

Finance Minister Joe Ceci said new infrastructure spending would help stabilize the economy.

“This budget is setting the right tone for this time,” Ceci told a news conference.

The right-leaning Wildrose party, the official opposition, said the deficit spending was “risky” and would lead to higher taxes and billions in new interest payments for the government.

Ceci’s capital plan includes spending on public transport and roads, water and wastewater projects and money for healthcare facilities and hospital renovations.

Other stimulus measures include promoting access to capital for small businesses and rewarding Alberta employers with up to C$5,000 for each new job created. Alberta will also raise taxes on tobacco, liquor, locomotive fuel and insurance premiums.

The province is assuming U.S. crude will average $50 a barrel this year and rise to $68 by 2017/18.

Editing by Chris Reese, James Dalgleish and Leslie Adler

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