Surplus could shrink further in the face of lower oil prices, Alberta finance …

EDMONTON – One week after the Alberta government lowered its oil-price forecast for fiscal 2014-15, Finance Minister Robin Campbell signalled Wednesday that the number may need to be revised further downward.

The government still expects a surplus this fiscal year, but it may be “a lot smaller� than the $933-million figure forecasted last week, Campbell said after speaking to the Alberta Enterprise Group at the Edmonton Petroleum Club.

“There’s a chance the surplus could be a lot smaller than we’ve said, for sure, but we will run in the black,� he told reporters.

In its spring budget, the government banked on an average price of $95.22 for West Texas Intermediate oil, but plunging prices since then prompted a downward revision in its second-quarter fiscal update Nov. 26.

The revised forecast — based on oil remaining at $75 US from now until the end of the fiscal year — called for an average WTI price of $88.88 for all of fiscal 2014-15.

“Right now we’re saying $88, but like I say, that could go down,� Campbell said in his speech. WTI crude closed at $67.40 Wednesday, up 52 cents on the day.

The $933-million year-end surplus forecast last week was a revision from the $1.1-billion surplus forecast in the spring budget.

Campbell and Treasury Board officials will discuss oil prices and other issues Thursday in a meeting about next year’s provincial budget with private-sector economists from major banks and the Conference Board of Canada.

Their input will help the government fine-tune its forecasts, Campbell said.

He cautioned that sustained low oil prices will have an impact on government coffers, since every $1 drop in the price of oil costs the province $215 million in royalty revenue. To offset the impact, the government needs to focus on reducing costs and cutting waste, he said.

This week, Leo de Bever, the departing head of Alberta Investment Management Corp., the province’s largest pension fund manager, said Alberta needs to start charging a sales tax as it prepares for $70 oil over the long term.

But Campbell, echoing Premier Jim Prentice, said Alberta won’t consider a sales tax.

“We’ve had a number of very influential and very prominent Albertans say that we need to have a sales tax,� Campbell said when asked about de Bever’s advice. “One of our competitive advantages is that we don’t have a sales tax, and as I’ve said, any discussion about new taxes is premature.�

Prentice has left open the possibility of changes to Alberta’s 10-per-cent flat tax, but Campbell said it’s too early to have that discussion.

“My priority right now is to make sure taxpayers are getting their best bang for their dollar for government spending.�

David MacLean, vice-president of communications and policy with the Alberta Enterprise Group, said the organization has long been concerned with the level of government spending.

“Now that oil prices are doing what they’re doing, we’re doubly concerned,� MacLean said.

“We heard some good things from the minister today about his willingness to explore cost-reductions in government. We think that’s the first step before other options are considered.�

Last month, credit rating agency Moody’s said Alberta will keep its AAA credit rating even if oil prices fall to $60 a barrel.

In a short-term energy outlook issued in November, the U.S. Energy Information Administration forecasted WTI prices would average $78 per barrel in 2015, $17 lower than it had predicted in October.

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