PCs Miracle Budget Update:

Have you ever had someone come to you with a business proposal that was just too good to be true? The pitch usually goes something like this: there is this new miracle drink that prevents every known disease, sales growth has been 200%, and if that continues for just 5 or 6 years we’ll all be millionaires!

Of course, oftentimes the pitch forgets to mention that the drink is really bad tasting fruit juice, the 200% growth is really them selling 6 bottles to their family this month after only 2 last month, and that you have about as much chance getting rich at selling these drinks as you do selling Amway.

Welcome to PC Budget Update August 2011!

Many in the media dutifully reported the desired headline from PC Finance Minister Lloyd Snelgrove – that the budget deficit had been reduced to $1.3 billion and that he thought there was a chance that Alberta could be back in surplus by the end of this year! Wow – who’d of thunk it?  

There were, however, just a few small details left out by the Minister. Let’s call it a ‘Top 10 things Lloyd Snelgrove and the PCs didn’t tell you about the state of our provinces finances’ list:

1.    In order to achieve this reduced deficit number, Mr. Snelgrove has forecasted oil at roughly $100 a barrel for the year. As anyone following the news might have noticed, oil is at $82 a barrel with all signs pointing to a slowing US economy, and therefore a lower cost of oil for the rest of this year. Should oil remain at roughly $80 for the year, you can tack on about $2 billion to the deficit (roughly what the PCs just magically made disappear).

2.    This is the first time the PCs have forecasted the price of oil higher than what the current price of oil actually is. Usually, governments try to underestimate the price so that if things go well it’s a pleasant surprise – but if things go poorly they haven’t spent themselves into a sea of red ink. So why the obvious over-estimation of oil prices? If I were cynical, I might think the PCs used this update to claim the budget was near elimination just in time for a snap election…breaking the bad news is so much easier after the ballots are cast after all.

3.    $3 billion in infrastructure borrowing and spending is not included in the final deficit number because it is offset as a new asset on the balance sheet. The actual cash deficit (meaning the actual amount the PCs are spending more than they are taking in) is over $4 billion this year.

4.    Since Ralph Klein paid off the debt in 2006, we have added over $5 billion in new debt.

5.    The Heritage Fund is now officially worth less (when adjusted for inflation) than it was worth when Premier Lougheed first started it in 1976. The PCs have raided every cent of interest earned in the Fund and placed it in general revenues in order to mask the size of their most recent record deficits.

6.    At a minimum, half of the Sustainability Fund has been blown through these past last 2 years (after the recession ended).

7.    PC spending has been roughly double the rate of inflation plus population growth over the past 10 years.

8.    Oil is at historical highs – other than for one brief moment when it went up over $140 a barrel, oil has never been as consistently high as it has been over the last 2 years.  

9.    The recession has been over for 2 years now, with unemployment in Alberta at historically low levels due to the aforementioned high price of oil and the employment activity it has produced once the PCs, under political pressure from the Wildrose, reversed course on their ill-conceived new royalty framework.

10. Non-renewable resource revenues and land sales are set to come in at or very near record levels this year.

The most amazing thing about this whole sad story is this. Even if the PCs are correct and oil miraculously stays at $100 a barrel for the rest of the year, they still can’t balance the budget. We still have a $4 billion cash shortfall. The Heritage Fund is still being raided to pay for their spending addiction. The Sustainability Fund is still going down and we are still borrowing more money.