Alberta will need to cut public spending and work towards a more diversified economy if it is going to weather the latest budget crisis, Premier Jim Prentice told a business luncheon Tuesday.  

"This is going to be a very difficult year and challenging year," Prentice said at the event, which was hosted by the Edmonton Economic Development Corporation. "Everything is on the table."

'I could terminate the employment of every single employee of the Government of Alberta, leaving aside health care, and it would not fill a six- to seven-billion-dollar hole.' - Premier Jim Prentice

Plummeting oil prices, which fell below $50 a barrel this week, have caused the province to reassess its financial future. Last week, Prentice revealed that the province is forecast to end the year with a $500-million deficit, instead of the surplus originally expected. 

On Tuesday, the Conference Board of Canada released a report saying that the drop in oil prices may push Alberta into a recession.

Prentice disagreed with the analysis, but said government forecasts predict oil prices will remain around $62 a barrel over the next year, which could mean a $6.2-billion hole in Alberta's budget – a number he equates with the entire payroll of the province.

"This is not just about shaving down salaries of the top Sunshine List employees," he said.

"I could terminate the employment of every single employee of the Government of Alberta, leaving aside health care, and it would not fill a six- to seven-billion-dollar hole.”

The premier signalled that less spending, including possible cuts to public sector wages, would be required to make up the losses. He called on people to reflect on "burden-sharing."

Asked whether the government would be dipping into the Alberta Heritage Fund, Prentice said, "I don't think that’s under consideration at this point in time."

Prentice said Albertans feel quite strongly that the Heritage Savings Trust Fund should be used as a savings fund for future generations.

"I think that we can deal with the circumstances that we face over the next three years within the $500 billion contingency that we have and the other levers that we have at our disposal."

Too reliant on oil economy

The premier said volatility in oil price made it impossible to effectively plan for the future. He argued Alberta has become too dependent on natural revenues to prop up its budget.

“Suddenly, that has evaporated. Fifteen per cent of the province’s revenue stream has evaporated," he told the crowd.

While oil is an important part of the economy, the province will need to look into ways of diversifying and finding more reliable sources of income, Prentice said.

Earlier this week, former finance minister Ted Morton publicly called for the government to consider a provincial sales tax. Prentice said while the proposal has long been considered politically unpopular, it was a discussion "we want to have."

The province will consult with the public about potential remedies in advance of the next budget, the premier said.