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UPDATING ALBERTANS
TABLE OF CONTENTS 2002-03 Forecast Actual Results2002-03 Forecast Highlights
Revenue Non-Renewable Resource Revenue Non-renewable resource revenue is forecast at $6.4 billion, $2.7 billion higher than the budget estimate, and $1.4 billion higher than forecast in the Second Quarter Fiscal Update.
Income Tax Revenue Income tax revenue is now forecast at $7.3 billion, $1 billion higher than the budget estimate, and $370 million higher than the second quarter forecast. Higher energy prices and stronger-than-expected cash receipts have increased the corporate income tax revenue forecast to $2.4 billion, $850 million higher than budgeted. Personal income tax revenue is expected to be $4.9 billion, $159 million higher than budgeted, due to stronger employment and income growth. Transfers from Government of Canada The forecast for federal transfers has been reduced to $2.1 billion, $99 million less than budgeted. The Canada Health and Social Transfer (CHST) is $400 million lower than budgeted as a result of updated prior year tax assessment data. The 2001 tax year data indicate that Alberta’s share of the national tax point transfer component of CHST has increased. This reduces the cash portion of the transfer. The reduction in CHST is partly offset by an increase of $291 million in federal transfers for agriculture assistance, and $10 million (net) in other federal transfers including disaster assistance and the Canada/Alberta Affordable Housing Agreement. Total investment income was budgeted at $1.2 billion. It is now forecast at negative $119 million, $1.3 billion below the budget estimate. The decline in equity markets is expected to result in a $704 million loss in the Heritage Fund and other endowment funds (rather than budgeted net revenue of $635 million). This loss includes a $506 million write-down in assets, where the value is considered permanently impaired, and net realized losses of $198 million. Other Revenue Total revenue from all other sources is forecast at $7 billion, an increase of $420 million from the budget. The increase is mainly due to:
Expense Aboriginal Affairs and Northern Development expense is up $34 million from the budget for First Nations consultations and the Piikani First Nation settlement announced in the second quarter. Agriculture, Food and Rural Development expense is forecast to be up $1.1 billion from the budget, almost entirely for drought-related assistance: $623 million for crop insurance payments, $324 million in acreage payments and payments for covered crops and beehives, and $138 million under the Farm Income Disaster, grasshopper control and farm water programs. Part of this higher spending is funded by $443 million in increased agriculture-related revenue, including transfers from the federal government. Gaming expense is up $26 million from the budget. The $31 million provided for the Community Initiatives Program in the first quarter is partially offset by a reduction in flow-through payments for NHL lottery ticket sales and delayed implementation of electronic bingo. Health and Wellness expense is up $25 million from the budget because of higher utilization of and prices for prescription drugs. Human Resources and Employment expense is up $25 million from the budget, as participation in the Skills Development Program is higher than anticipated. Learning expense is up $66 million from the budget. $60 million is being allocated to the Teachers’ Pension Plan to fulfill the commitment to pay the teacher's share of pre-1992 unfunded pension liabilities for one year. Additional funding is also being provided for Rutherford Scholarships, the unique benefit cost increases imposed only on the Calgary Board of Education in the arbitrated settlement, and the government’s share of teachers’ pension costs. Municipal Affairs expense is up $29 million from the budget to pay for disaster recovery assistance programs and an increase for underground petroleum storage tank site remediation. Revenue expense is up $36 million from the budget. Reassessments have increased interest expense on corporate income tax refunds by $58 million. This is offset partly by a reduction in the spending of the Alberta Heritage Foundation for Medical Research Endowment Fund. Sustainable Resource Development expense is up $250 million from the budget. Forest fire-fighting costs have increased by $248 million. Part of this cost is funded by insurance proceeds of $55 million. An additional $2 million has been provided for the Natural Resources Conservation Board’s review of confined feeding operations. Transportation expense is up $57 million from budget. $41 million is related to revised forecasts of amortization and inventory consumption costs for the Secondary Highway System, and $16 million was provided in the first quarter to reinstate some deferred projects. Other ministry increases include:
Debt servicing costs are forecast at $550 million. This is a $35 million reduction from budget due to in-year changes in foreign exchange and interest rates. The net change in capital assets affecting operations is $108 million, $15 million higher than the budget estimate. Capital investment is $59 million higher than budgeted. This reflects an $85 million increase in Transportation and Infrastructure capital investment, primarily to fund deferred capital projects. Partly offsetting this is a decrease of $33 million in the capital investment of Innovation and Science, reflecting changes to the SuperNet funding schedule. Most other changes result from reallocations between operating expense and capital investment. Capital amortization is $44 million higher than budgeted, mostly due to revised forecasts of the amortization and inventory consumption costs for the Secondary Highway System.
The contingency reserve, prior to in-year allocations, is $523 million. Of this amount, $328 million has been allocated for in-year spending initiatives:
The remaining $195 million in the contingency reserve has been allocated to the new Capital Account, which will be used to fund capital projects starting in 2003-04. First quarter allocations included funding for deferred capital projects, teachers' pensions and the Community Initiatives Program. Third quarter allocations have been made in a number of areas, including: increased funding for drug costs, the Skills Development Program, teachers' pensions, affordable housing, tourism marketing and services, a drivers licence upgrade program, underground petroleum storage tank site remediation and the increased interest expense on corporate income tax refunds. Section 4(2) of the Fiscal Responsibility Act provides that emergency and disaster spending is deducted from the economic cushion prior to calculating the allocation of the cushion. Total emergency and disaster assistance is now forecast at $1,352 million, consisting of:
Section 4(3) of the Fiscal Responsibility Act further excludes certain spending changes from being deductions from the contingency reserve if they are offset by equivalent additional revenue. There is a net $55 million increase from the budget for these items, including:
Net Assets The Province's net assets (excluding pension liabilities) are forecast to increase by nearly $1.8 billion in 2002-03 to $11.6 billion. Total financial assets are forecast at $25.2 billion. Total liabilities are forecast at $13.6 billion. In addition, there are pension obligations of $4.8 billion that are scheduled for elimination under a separate 1993 legislated plan. Cash Available from 2002-03 Operations Because of the lag in receiving natural gas royalties, some of the cash from the $1.8 billion economic cushion will not be available until the 2003-04 fiscal year. This will result in a positive cash adjustment in 2003-04 that will be deposited in the Alberta Sustainability Fund. Of the $1.4 billion in cash available in 2002-03:
Accumulated debt, less cash set aside for future debt repayment, equalled $5.261 billion at March 31, 2002. The $500 million allocation for debt repayment will reduce accumulated debt (less cash set aside) to $4.761 billion at March 31, 2003. All of the accumulated debt that matures in 2002-03 (approximately $1.65 billion) will be repaid. At the end of 2002-03, there still will be $2 billion available to retire accumulated debt as it matures in 2003-04 and 2004-05.
Cash Available from 2002-03 Operations
Fiscal Year Assumptions
Actual ResultsFor the first nine months of 2002-03Method of Consolidation This financial summary is prepared on the same basis as used in Budget 2002. The results of all government departments, funds and agencies, except those designated as commercial enterprises, are consolidated on a line-by-line basis. Revenue and expense transactions between consolidated entities have been eliminated. The accounts of Crown-controlled corporations and provincial agencies designated as commercial enterprises are consolidated on an equity basis, the equity being computed in accordance with generally accepted accounting principles. Basis of Financial Reporting The consolidated fiscal summary reports revenue (including proceeds from sale of capital assets), expense (including amortization of capital assets), and net revenue. Consistent with the policy that capital assets are not included in the province's financial assets, losses on disposal and write-downs of capital assets do not affect revenue, expense or net revenue for the period. The intermediate result of operations (net revenue) is then adjusted for the difference between capital investment and capital asset amortization. The final result is the consolidated net results of operations subject to the Fiscal Responsibility Act. Expense includes the province's annual cash payments towards the unfunded pension obligations. Expense excludes the annual change in the unfunded pension obligations, which is a non-cash expense that does not affect borrowing requirements. Revenue and expense are recorded using the accrual basis of accounting. Cash received for goods or services which have not been provided by period end is recorded as unearned revenue. Debt servicing costs include interest payable, amortization of discount on debt issues, and amortization of unrealized exchange gains and losses on unhedged foreign currency debt. Comparative 2001-02 figures have been restated where necessary to conform to 2002-03 presentation.
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