Alberta's deficit will be even bigger than officials had feared, according to a third quarter forecast released in Calgary on Tuesday.

Alberta Finance Minister Doug Horner expects this year's deficit to reach between $3.5 billion and $4 billion, up nearly $1 billion from the last quarterly update. In the first nine months of the fiscal year, resource revenue was down $2.4 billion from expected.

"We can't control world market prices, but we can make decisions that will impact our bottom line both today and into the future. The premier has made it clear that, as a government, we will live within our means and hold the line on spending," Horner said.

As a result, the provincial government is freezing public sector manager salaries for three years and laying off 10 per cent of those workers, or about 480 jobs, during the same period. Horner said that should send a strong message to those currently in contract negotiations, such as the province's doctors and teachers.

"We have been fairly, I would say, consistent in saying there is no new money. So we're not telling them anything that is out of school," Horner said. "The fact is, this is where we are going with the management and opted-out [employees] and they should take that as a strong signal as to what we have in mind."

The salary freeze will save $54 million and provincial officials have identified another $600 million in savings across departments.

While Horner blamed the problems on falling resource revenues, he said the Alberta economy is still growing and is the strongest in Canada.

Horner is set to deliver the province's budget on March 7.

Critics not surprised

Wildrose Party Leader Danielle Smith described the budget as "quickly unravelling," adding that economists and politicians had warned the government that their projections were too rosy.

"One of the things I will say is we are happy to see they've finally taken our advice and looked at the management to worker ratio," she said.

Alberta Liberal finance critic Kent Hehr said the province's problem shouldn't be blamed on falling oil and gas revenues.

"We need to budget more conservatively," he said. "We should pay for what we use by bringing in personal and corporate income taxes. If we ever want to get out of this cycle that we've been on for the last 40 years, Albertans need to operate on a pay-for-what-you-use principle."

Earlier in the day, the Fraser Institute think-tank issued a report suggesting Alberta's financial woes are the result of spending increases above the rate of inflation. Spokesman Mark Milke said the funding of programs doesn't necessarily provide better services for Albertans.

"It depends on the choices you make. More doesn't necessarily equal more of anything, except a more well-compensated public sector."