April 8, 2009 / 9:56 PM / in 9 years

Back in deficit, Alberta won't rule out tax hikes

CALGARY, Alberta (Reuters) - Alberta’s finance minister, who has delivered the oil-rich Canadian province’s biggest-ever deficit, refused on Wednesday to rule out tax hikes to shore up the books if energy and financial markets stay depressed.

The C$4.7 billion ($3.8 billion) 2009-10 deficit and any talk about higher taxes would have been unthinkable only last year in conservative Alberta, which had racked up 14 straight budget surpluses as its energy sector boomed, and took pride in being the most business-friendly region of the country.

“We’re not saying ‘no’ relative to tax increases -- we can’t say that because we do not know how finite this recession will be,” Finance Minister Iris Evans told a Calgary business audience a day after delivering the budget.

“We’re hoping it’s a sharp decline and we’re hoping that we’re out of it in short order -- there’s no question -- and we’re the best positioned place in Canada, and maybe even in North America, to get out of it on the right track.”

The Conservative government of Premier Ed Stelmach has said that it may be forced to either generate or save C$2 billion annually starting in 2010 if economic conditions do not improve for the province of 3.5 million people, which is one of the largest suppliers of oil and gas to the United States.

Much of the deficit -- Alberta’s largest since 1987 -- is blamed on an expected drop in revenues from the all-important energy sector by more than half from last year.

To allow the red ink, the government had to soften a law from the 1990s that outlawed deficits.

At the time, former Premier Ralph Klein ended deficit budgets and paid off the provincial debt partly by making deep cuts to public spending. Stelmach has not followed suit.

Evans defended the budgetary shortfall by saying that, unlike other provinces, Alberta can finance it by tapping into its C$17 billion “sustainability fund,” which is designed for short-term emergencies.

The province aims to issue about C$1 billion of debt this year, but only because its AAA credit rating makes it a better financial proposition for some infrastructure projects, she said.

“I want to make sure people know I‘m not going to the bank to borrow that C$4.7 billion. We’re going to the savings that we put in place for the rainy day to get that money and there’s a lot of confusion about that,” Evans said.

For Alberta to avoid a deficit budget this year, oil prices would have to average $75-$80 a barrel, she said. Her budget assumes oil at $55.50.

Crude closed at $49.38 a barrel in New York on Wednesday, compared with a record of more than $147 set last July.

($1=$1.24 Canadian)

Reporting by Jeffrey Jones; editing by Rob Wilson

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