Canada’s chief natural gas producing jurisdiction is being pinched by soft prices, Alberta Finance Minister Ted Morton has confirmed. New government accounts, described by critics as highlighting “madness” of relying on resource income, show that gas has fallen to fourth place among provincial revenue sources from its previous stellar role as the reliable No. 1.

Based on a bruising first fiscal quarter ended June 30, Alberta gas royalties are forecast to be C$1.9 billion (US$1.8 billion) for the provincial treasury’s full financial year of April 1, 2010, through March 31, 2011. Expectations for the fiscal year average price at Alberta wellheads have been lowered by 12% to C$3.75/gigajoule (GJ) (US$3.70/MMBtu) from the spring provincial budget’s forecast of C$4.25/GJ (US$4.20/MMBtu), thanks to domestic supply gluts and especially to oversupplied and flat markets in U.S. export destinations where a majority of production typically goes.

The 2010-2011 Alberta gas royalty projection is down by 77% from C$8.4 billion (US$7.9 billion) in the revenue source’s peak year of 2004-2006, when prices soared across North America after hurricanes damaged production in the Gulf of Mexico and before shale supplies surfaced as a major market factor. Alberta gas royalties held up in a still-healthy range of C$5-6 billion (US$4.7-5.6 billion) through to the end of the 2008-2009 provincial fiscal year.

In the current year Alberta outlook gas revenue trails behind personal income taxes of C$7.8 billion (US$7.3 billion), corporate taxes of C$4 billion (US$3.8 billion) and oilsands royalties of C$3.5 billion (US$3.3 billion).

For 2010-2011 Alberta gas revenue has dropped into the same league as the expected total of C$2 billion (US$1.9 billion) from provincial “sin taxes” including C$1.3 billion (US$1.2 billion) from government lottery and gaming operations and C$697 million (US$655 million) from liquor sales.

Only five years after high and rising gas royalties erased Alberta provincial deficits and enabled repayment of all government debts, the finance minister is predicting a 2010-2011 budget deficit of C$4.8 billion (US$4.5 billion).

But Morton will be able to pay all the bills without resorting to borrowing, thanks to a rainy day treasure chest filled up during the natural gas fat years. Known as the Alberta Sustainability Fund, the safety net of banked surpluses from better times held C$15 billion (US$14 billion) at the start of the current fiscal year.

No major course changes were announced by the province when the finance minister released the new outlook. “There is still a great deal of uncertainty in the global economy and our revenue remains highly volatile,” Morton said. “While the province’s economy is on the mend, we continue to be affected by factors beyond our borders and our control.”

Opposition Liberals and New Democrats leaped to defend health, education and welfare programs against cuts by the ruling Conservatives. On the political right spending restraints were demanded by the budding Wildrose Alliance Party, a western Canadian counterpart to the taxed-enough-already TEA Party movement in the United States. Financial and political commentators bubbled with speculation about possible introduction of a sales tax — an item Alberta has proudly not had since a short-lived and intensely unpopular consumer levy was briefly imposed in the 1930s after the government went broke and defaulted on bond interest payments during the Depression.

An “alternative fiscal update,” crafted with more care by the Alberta Federation of Labor than the snap reactions of the political parties, suggested that the province has learned nothing in its 105-year history as Canada’s natural resource extraction mainstay. The 21st century’s performance to date of boom-to-bust royalties and budgets point to “the madness of the government’s revenue system, which relies too heavily on volatile commodity prices,” the federation said.

The labor movement demands “a grown-up conversation on how to reform our broken revenue system and come off the horrific rollercoaster ride,” but far more powerful business community interests, including the petroleum industry, still support the government’s determination to ride out the economic rough spots without making big changes — and especially without reversing royalty reductions made last spring after a two-year battle over previous increases.

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