April 14, 2016 / 9:24 PM / in 2 years

Canada's Alberta to post C$10.4 billion deficit as oil price slump bites

CALGARY, Alberta (Reuters) - The Canadian crude-producing province of Alberta said on Thursday it will post a C$10.4 billion ($8.10 billion) budget deficit this fiscal year and warned that a surplus might not return until 2024 as the oil price slump batters its economy.

A well head pumps oil into storage tanks at a well site about 60 kilometres east of field office during a tour of Gear Energy's well sites near Lloydminster, Saskatchewan August 27, 2015. REUTERS/Dan Riedlhuber

Alberta, home to Canada’s oil sands and the No. 1 exporter of crude to the United States, has been hammered by a plunge in prices to around $40 a barrel from $105 in mid-2014.

The New Democratic Party government, which swept to victory last May, had said it was prepared to tolerate deficits, and Finance Minister Joe Ceci reiterated it would protect public services.

“The first option is to slash and burn vital programs that Alberta families count on, and that’s the wrong path,” Ceci said. “Instead we will carefully maintain spending, ensuring we are spending every tax dollar wisely while helping Albertans weather this storm.”

Alberta will borrow heavily to fund its fiscal plan, with total debt hitting C$57.6 billion by 2018-19, or 15.5 percent of nominal GDP. As a result, the government will scrap legislation introduced last year to limit debt-to-GDP to 15 percent.

Ceci pledged to keep funding stable for health, education and social services but save C$600 million in operating expenses over the next two years through measures including a freeze on managerial salaries and merging or dissolving 26 government agencies.

The government will invest C$34 billion in a five-year infrastructure plan on projects including roads, bridges, schools, hospitals and spend C$250 million over two years to support job creators.

Alberta is also cutting the small-business income tax rate to 2 percent from 3 percent.

Over five years Alberta expects a new carbon levy to raise C$9.6 billion, of which C$6.2 billion would be invested in green infrastructure and renewable energy projects, while the remainder would help cover consumer rebates and the small-business tax rate reduction.

The opposition Wildrose party slammed the NDP’s spending and borrowing plans.

“The NDP plan will hit families hard this year with a worsening economy, a punishing new carbon tax and dangerous new levels of borrowing,” Wildrose leader Brian Jean said.

The difference in yield between Alberta’s 10-year bond and the Canadian government benchmark has narrowed more than 25 basis points since mid-February to 100.5 basis points on Thursday, its narrowest since Jan. 5, as a partial recovery in oil prices improved the province’s economic outlook.

($1 = 1.2844 Canadian dollars)

Additional reporting by Fergal Smith; Editing by Steve Orlofsky, Bernard Orr

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