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Is Alberta Suffering From The Oil Curse?

Alberta needs long-term fiscal planning to avoid the adverse effects of oil price swings on the contents of its coffers, outgoing auditor general Merwan Saher said in his final report. “I have no idea what the (government) plan is going out into the future,” he said. “I think there’s a tendency generally, we’re human beings, that the future will take care of itself. That is incredibly risky for a group of people to rely on.”

Alberta enjoyed massive oil revenues during the boom years, but it is now suffering the effects of the latest oil price collapse, aggravated additionally by the pipeline shortage that has increased the discount at which Western Canadian Select trades to WTI.

Saher went on to add that the province’s oil wealth has proven to be a mixed blessing, as oil revenues are easy to use as substitutes for more stable sources budget income in terms of prices. To avoid slipping into this trap, the extreme version of which is often referred to as the oil curse, Saher believes that long-term fiscal forecasting helps.

The auditor general referred to Norway as a case in point. Norway’s long-term fiscal projections help keep spending within reasonable limits, reducing the risk of a major budget deficit.

Alberta, failing to follow Norway’s example, has been laboring under the weight of multibillion-dollar deficits in the past few years thanks to the oil price rout, although after prices started recovering last year, the gap has begun to shrink.

Related: $100 Oil Is Back On The Table

In its latest fiscal update, the provincial government said it had revised down its projected deficit for this year by US$1.1 billion (C$1.4 billion) to US$7.18 billion (C$9.1 billion), with GDP growth seen at 2.8 percent.

However, this improvement in the fiscal situation of the oil-rich province only serves to highlight its dependence on oil revenues. It also helps explain the government’s unwavering resolve to have the Trans Mountain pipeline expanded.

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By Irina Slav for Oilprice.com

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  • John Clark on April 20 2018 said:
    Alberta made the horrible error of leaving a bunch of thieving Conservatives in office for too many years. They ended up in a state of entitlement unlike any I have witnessed. A percentage of oil revenue was to go into the Heritage Trust Fund.

    That went well for a number of years until Ralph Klein came to power. He was a Conservative's Conservative. He initially drew down on the heritage fund to pay for a couple billion dollars in debt the same conservatives had run up.

    Then, they froze the heritage trust at 5% profits taking all above and putting it into general revenues to spend as tax money. Doing this they diminished the fund by 670 Billion dollars! That is where the money went to you speak of.

    There is not a thing going on in Alberta's finance that cannot be attributed directly to the Conservative actions leaving the cupboard bare for those who followed.
  • Kevan Rurak on April 20 2018 said:
    Alberta could never really have a surplus ,and save because of the equalization payments. In Canada it is a mistake to have a balanced budget as the other provinces get the surplus. So true to socialism , everyone goes in debt, those who don't get penalized .
    Eenergy

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