Belt tightening on the way for provinces

Doug Horner, Alberta’s finance minister, is on the record saying there will be no tax increases and no new sales tax in the province’s March 7 budget.

However, he admits this budget is “not going to be fun.” No kidding. Alberta oil has been selling at about $42 per barrel less than U.S. crude, and that yawning gap is going to take a big bite out of the government’s royalties.

Making things more difficult is the fact that the province’s stabilization fund is exactly half what it was only two years ago. It’s really nice to have $7.5 billion in the bank, but $15 billion is better, especially when your budget totals $41 billion. Borrowing looms.

Alberta must push through new pipelines to become competitive in the oil sector again or this sub-par price is going to continue. Pipelines are not built in a day, so building a budget could be tricky for at least another year or two.

Furthermore, Alberta has more competition coming on from the United States, so transporting oil easily and relatively cheaply is going to be increasingly important.

Falling oil prices are also hitting Saskatchewan’s books, but the difference in impact is huge. The so-called bitumen bubble could drag Alberta down by $4 billion, while Saskatchewan’s revenues are expected to be down $300 million.

Premier Brad Wall says Saskatchewan is in better shape than Alberta because of its more diversified mix of resources. It’s a good point, but potash and uranium, two of those royalty-paying industries, are also seeing lower prices and lower demand.

Still, it beats relying on oil.

Meanwhile, in Manitoba, finance minister Stan Struthers has said that in a time of global economic uncertainty, “it is important to keep focused on responsible fiscal management.”

It looks like we can expect three pretty austere March budgets. However, the Saskatchewan and Manitoba governments may be in slightly better shape politically than Alberta’s, which is governing a culture that resists tax increases more than most. That budget will be the hardest to sell.

It’s a good thing agriculture is looking promising, not that it will help make up for the royalty problem.

And if things don’t improve by March 2014, here’s a prediction: Alberta will join the rest of Canada with a provincial sales tax. It may not have a choice.

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