08/17/2011 01:03 EDT | Updated 10/17/2011 05:12 EDT

Back toward black? Alberta projects smaller deficit in 2011-12 due to oil profit

EDMONTON - Alberta is on track this year to slash its multibillion-dollar deficit by more than half, but Finance Minister Lloyd Snelgrove admits the global debt crisis has put everything in flux.

"We're not immune from a global contraction," Snelgrove said Wednesday after revealing first-quarter figures for the 2011-12 budget year.

"(But) our economic outlook remains positive. We are in good fiscal shape and we will maintain our steady approach."

Snelgrove said the petro-powered province is in better shape to weather the global financial storm, which has seen stocks plunge dramatically in the United States and a debt crisis flare in Europe.

"A lot of what is going to go through a contraction are the money markets and the people who deal in share stocks or speculate on the value of currencies," he said.

"Ours are real products. That's a real barrel of oil. That's a real load of lumber. That's a real beef carcass going to somewhere."

He acknowledged that the rosy predictions are based on a barrel of West Texas Intermediate oil fetching US$97.85. It is currently trading at less than $88.

But if the projections are realized and the economy continues to grow, the province could even balance the books by fiscal year end, Snelgrove suggested.

"I think there's a very real chance that at the end of this year we will be back in the black."

Alberta was budgeted to run a $3.4-billion deficit for the fiscal year ending next March. Snelgrove said the deficit is now projected to be $1.3 billion due mainly to higher revenues from oil production and selling drilling leases.

Officials say the numbers were crunched in early July to be ready for release in mid-August, before the current crisis that has sparked fears of a double-dip recession.

Revenue is expected to rise by $2.7 billion to $38.3 billion.

But spending is also expected to rise by $650 million to $39.6 billion. Most of that extra money will pay for extra forest fire-fighting, flood relief and money to get Slave Lake back on its feet. One-third of the community northwest of Edmonton was destroyed by a forest fire in May.

The province is budgeting an extra $234 million this year to pay for temporary shelters for Slave Lake families, for cleanup, no-interest loans to businesses and interim housing. Another $55 million is earmarked to be spent over the next two to three years.

The balance in the province's Sustainability Fund — the money used to cover budget shortfalls and other emergencies — was originally pegged at $5.3 billion, but is now expected to come in at $9.7 billion. Half of that increase comes from money that was saved from the previous budget year.

The Heritage Savings Trust Fund, the province's long-term piggybank, is expected to grow slightly by $1 million to $14.5 billion.

The second-quarter update, which will reflect the impact of the current crisis, is not expected until November.

Until then, say government critics, the numbers are meaningless.

"This is a good start to the fiscal year, but as we see the turbulence unfold in the international financial markets, there's reason for all of us to be cautious," said Hugh MacDonald, finance critic for the Opposition Alberta Liberals.

Brian Mason, leader of the NDP, said the government is touting out-of-date numbers as a public relations exercise for a provincial election expected as early as this fall but more likely to be called next spring. Tory party members vote next month to pick a new leader, to replace Premier Ed Stelmach, who is retiring.

"Mr. Snelgrove is attempting to paint a very rosy picture that may not be valid," said Mason.

Mason said it's questionable for Snelgrove to suggest that Alberta is better positioned to weather a crisis, given that it doesn't matter how much oil and lumber you have if customers don't have the cash to buy.

"If the world economy continues in the direction it has been going in the last month or two, we are going to see a return of difficult times," he said.

Rob Anderson of the Wildrose party said the oil projections are a pipe dream, given that some analysts say the price could hit $60 a barrel.

“These guys are using phoney numbers to try and boost their fortunes before they pick a new leader and take us to a fall election,” said Anderson in a news release. “They know that by the time these numbers are exposed, the election will already be over.”

Scott Hennig of the Canadian Taxpayers Federation agreed that the province would need a miracle windfall of cash to balance the budget.

He said taxpayers continue to pay for a government that couldn't rein in spending in the years of multibillion-dollar surpluses before the 2008 global recession.

"This government is at a point where even insane levels of oil prices will still not balance their budget," said Hennig.