The provincial government has released their fiscal update for the second quarter, and the update outlined major hits to the province's finances, and critics are worried the province is sitting on an 'economic time bomb'.

Officials said in the first six months of the fiscal year, resource revenue was $1.4 billion less than expected – they cited a number of reasons for the drop, including the global economy, a drop in bitumen prices relative to international prices for crude, a higher exchange rate and lower land lease sales.

“The biggest factor affecting our resource revenue right now is the lack of market access for our oil,” President of the Treasury Board and Finance Minister Doug Horner said. “We have one customer, and one means to ship our product to them.

“On the other hand, our customer has many different suppliers to choose from. This is not a good situation that is costing us dearly.”
Horner said the differential is at about $29 a barrel, and the low cost is affecting the province’s bottom line.

In addition, expenses in the first six months ended up being about $293 million higher than expected – due to funding needed following forest fires and severe hail storms.

Based on results published so far this year, the province is forecasting a deficit between $2.3 and $3 billion.

The leader of the Official Opposition predicts the deficit will only get worse – as the government has committed to borrow more money for capital projects.

Danielle Smith said the books already show the province has borrowed $6 billion to date this year, and the province is spending more than $500 million on interest charges.

“This is the path they are taking us down,” Smith said. “As we start borrowing more and more for capital, it will start cannibalizing away from the programs that Albertans value.”

The Liberals predict the result will be cuts to services, if taxes don’t increase.

“You can’t keep doing it on fossil fuel resources, and now debt,” Liberal MLA Kent Hehr said. “To ask the taxpayer to pay for these priorities and I believe Albertans are willing to do that.”

The Liberals said if Alberta adopted a tax system that was similar to B.C.’s tax system, which is the second lowest in Canada, it would bring in an additional $12 billion in additional revenue.

To that, the government maintains personal taxes won’t go up, and a sales tax will not be introduced.

“I’m going to be really clear here, there is no discussion about implementing a sales tax in the next budget,” Horner said.

The province said the Sustainability Fund is sitting at $5 billion, but critics said if other borrowed funds are added, that fund is actually at $3 billion.

Before the recession, the Sustainability Fund held $15 billion.

With files from Kevin Armstrong