Tough budget ahead

It’s been quite the year travelling down a long and winding road for the PC government.

It’s been quite the year travelling down a long and winding road for the PC government.

Now as oil prices continue to fall, an ominous cloud is hovering over the Alberta Government as they prepare the upcoming 2015-16 budget.

The outlook looks bleak, as the price of oil slipped passed another benchmark last week.

Premier Jim Prentice warns that the government will struggle to balance its books by the end of the fiscal year.

The price of West Texas Intermediate crude dropped to an astonishing $49 U.S. a barrel on Jan. 5th for the first time since 2009, closing out at $50 a barrel on the New York Mercantile Exchange.

The value of Canadian energy company stocks also took a dive.

A tough provincial budget appears to be ahead as the financial gap continues to widen.

During a press conference, Prentice noted that the price dip, “Underscored that we are in an unpredictable low-price environment and that we have not yet seen the bottom.”

He added that the price drop is not permanent, but it concerns him that, “It will continue to bounce around at the low end of the range,” which could have immediate short-term financial effects on the government.

“Prices have fallen so precipitously and the government revenue stream has fallen so dramatically that we are hard-pressed to balance the budget for 2014-15, even though the projections as recently as October, November, were a $1.5 billion surplus,” he said.

The 2014-15 budget banked on oil prices to be approximately $95.22 a barrel.

Prentice said that the PC government is currently working on the 2015-16 budget, which will likely be tabled sometime in March.

He predicts oil will average around $65 U.S. a barrel for the new fiscal year, which will leave an approximate $6 billion to $7 billion gap in the upcoming budget. A hole this big may need to be dealt with through a combination of expenditure cuts, deferred capital projects or new revenue measures.

Even after these actions, the Progressive Conservative government will likely have to accept some type of deficit, said Prentice.

The falling price of crude oil is appearing to infringe on oilpatch spending and has started to raise fears province-wide about major job losses within the energy industry.

The only people appearing to benefit from the drop in the price of oil are consumers at the gas pumps.

Regular gasoline prices in Lacombe on Jan. 6th averaged around 77 cents.

Relief in gasoline prices can only be temporary, as production will likely be slowed on conventional oil production.

So fill up while you can now, to reap the benefits, before the swift hammer of the 2015-16 provincial budget comes down.

 

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