August 27, 2019 / 6:06 PM / 22 days ago

UPDATE 1-Canadian province Alberta warns of spending curbs ahead

(Adds finance minister quote, more details from fiscal update)

By Nia Williams

CALGARY, Alberta, Aug 27 (Reuters) - Canada's main oil-producing province Alberta warned voters on Tuesday of looming cuts to public spending to tackle increasing operating expenses and debt servicing costs that it blamed on the previous government.

The warning came even as a fiscal update showed the budget deficit for the three months from April 1 to June 30, 2019, shrank compared with a year earlier.

Alberta has been struggling to recover from the 2014-15 global oil price crash. Severe congestion on export pipelines means its crude trades at a discount to U.S. barrels and has deterred capital investment in the province.

Last week the government extended mandatory oil production curtailments into 2020, a policy that has helped prop up oil revenues but attracted criticism from some major integrated producers like Suncor Energy.

Alberta's budget deficit was C$835 million ($629 million), compared with a deficit of C$1.2 billion for the same period a year earlier, because of lower expenses. Three-month revenues were almost flat compared with the same period a year earlier, and operating expenses and debt servicing costs grew up C$363 million.

"These numbers do not paint a rosy picture. As a province we must live within our means and curb expenses," Finance Minister Travis Toews told reporters at a news conference.

Alberta has run deficits every year since 2015 when the province was badly hit by falling global crude prices. It still has one of the smallest outstanding debt as a share of GDP among Canadian provinces, but the pace of debt accumulation is growing.

It was the first update released by the new United Conservative Party (UCP) government, which was elected in April promising fiscal restraint, and did not include an update on the full-year budget deficit.

Alberta's 2018-19 budget deficit for the financial year ending March 31 was C$6.7 billion, according to figures released in June.

The UCP will unveil its full budget this autumn.

Expenses were lower because of restrictions on capital grant spending during the election period. Toews said it was unlikely that decrease would be mirrored throughout the rest of the fiscal year.

An increase in three-month resource and tax revenues from the same period a year earlier were offset by a number of factors including lower income from the Alberta Gaming, Liquor and Cannabis Commision and Alberta Petroleum Marketing Commission.

A narrower discount on Canadian heavy oil thanks to curtailments boosted resource revenues by C$164 million compared with the same period last year.

Income tax revenue rose C$166 million because of growth in household income and corporate profits, but other tax revenue was $66 million lower, mainly because of the UCP scrapping a carbon tax.

$1 = 1.3275 Canadian dollars Reporting by Nia Williams Additional reporting by Fergal Smith Editing by Denny Thomas and Marguerita Choy

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