"At this WTI price range there will be no much change to Royalties in compression to old regime."

Calgary Herald article

With its golden goose cooked, out comes Alberta's begging cap

Don Martin

Calgary Herald
Friday, January 16, 2009

As they did the palms-out parade into the shovel-ready summit Thursday, Canada's premiers were shouting their traditional demands for federal megabucks to kick-start their ailing economies with a tax-subsidized construction bonanza.

What has their saliva seriously flowing is the fact Prime Minister Stephen Harper has readied a giant pool of red ink, an estimated $30 billion or more, to geyser forth in this month's federal budget.

Every premier wants their share (or more) and most report having exhausted their fiscal ability as provinces to bear the recession-easing burden alone.

But the most dramatic change in the money-grabbing routine belongs to Alberta, which has suffered an economic sagging in tandem with free-falling oil and gas prices, which has cooled the recently overstretched construction industry into severe building shrinkage.

It's almost impossible to comprehend the speed of a downturn that hasn't yet been fully grasped by the rest of Canada. The spiral into a foreclosed housing epidemic and see-through, tenantless office towers I lived through in early 1980s Calgary was almost slow-motion by contrast to this abrupt reversal of fortunes.

The aftershock message from a gloomy Premier Ed Stelmach was simple enough: the goose that laid plenty of golden-revenue eggs for the rest of the country is severely cooked at $37 oil and $5 natural gas.

"The last number of years, our contribution to the country's overall revenue stream has been overwhelming at $18.3 billion net dollars," the premier told me in an interview Thursday.

"Don't depend on it, it's not going to be there," he said. "Be prepared to see much less revenue activity from the province of Alberta. What's difficult to get across to Canadians is that when the economy slows enough to a $37 barrel of oil, everybody suffers."

While sympathy for the energy czar of provinces--which basked in the riches of $140 oil just six months ago --is undoubtedly in short supply, Stelmach is correct in sounding the alarm about the national implications. Roughly 60 cents of every oilpatch buck flowed to other provinces to buy materials or pay taxes.

The reduced tax and royalty revenue for the federal government will be a major contributing factor to a deficit that likely exists now, never mind the heftier dose of bad news coming out in the budget 11 days hence.

To hammer home that point, all four Atlantic premiers will travel to Edmonton next month to show solidarity with an economy that employs --or perhaps I should say employed --thousands of Maritimers and Newfoundlanders, many sending their paycheques home to families in high-unemployment regions.

The way Stelmach sees it, unless oil hits $55 again and soon, Alberta's oilpatch is not self-sustainable. So pray for higher gasoline prices. OK, perhaps that's asking too much.

Yet the slowdown has put Alberta in the same league as other need-more provinces heading into today's First Minister's Conference with begging caps in hand. Stelmach is demanding his province's 10 per cent share of any emergency funding and assorted tax changes to help the struggling oil industry.

Calgary Mayor Dave Bronconnier was also in the capital to underline the urgent need for federal cash to help a city that has suffered a jaw-dropping dive in building permits, down to 3,000 now from 12,000 a year ago, leaving 20 per cent of its construction industry in down-tools mode.

He argues the federal government could unleash stimulus funds for senior and low-cost housing on city land that could be fast-tracked into construction within 60 days or provide loans to buy buses produced in Montreal or Winnipeg to bolster the transit system.

The fatal flaw in most of these demands is the feds plan to impose matching-fund requirements for their money, insisting a third come from cash-strapped cities and another third from the ailing provinces.

Stelmach, for one, doesn't sound like he'll open his vault to obtain federal money. He's actually going the opposite way, vowing to revive the brutal era of Ralph Klein budget cuts to keep his budget in balance.

"Before we get close to a deficit, we're going to look at every available opportunity to reduce expenditures," he says. "If we have to live with $40 barrel of oil, we will. We'll balance, but it's going to be difficult. We may go back to the same strategies we used in the early 1990s."

Perish the thought of returning to that bloody era of cuts to health care and education, but there's no denying that Alberta, a province so easy to envy so recently, is sinking toward an almost unimaginable deficit while the country's oil-lubricated economic engine slows to a crawl.

And what's bad for Alberta is terrible for Canada.

dmartin@canwest.com