The First Quarter Fiscal Update is comprised of two parts – the updated 2004-05 forecast and the actual results for the
first three months of the fiscal year (April 1 to June 30, 2004).

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• 2004-05 Forecast
  • Highlights
  • Revenue
  • Expense
  • Alberta Sustainability Fund
  • Capital Plan
  • Net Financial and Capital Assets
  • Assets, Liabilities and Net Assets
  • Net Financing Requirements
  • Fiscal Year Assumptions
  • Capital Investment and Amortization
  • Capital Grants to Local Authorities and Other Infrastructure Support
• Actual Results
• Consolidated Fiscal Summary
• Expense
• Go to First Quarter Activity Report
• Go to Highlights (pdf)

• On July 12, 2004, the government announced high energy prices will allow an additional $3 billion to be set aside to pay off Alberta's remaining accumulated debt. Since 1994, nearly $23 billion has been committed to debt repayment, saving approximately $1.4 billion in annual debt servicing costs.

• Revenue is forecast to be $4 billion higher than estimated in the budget. The increase reflects higher energy, income tax and investment income revenue.

• Total expense is forecast to be $1.4 billion higher than budgeted. This includes:
  • $503 million increase in capital grants funded from the Capital Account. As announced in June 2004, additional funds were transferred into the Capital Account from the better than forecast year-end results for the 2003-04 fiscal year. These
    funds are being used in the current fiscal year to increase health and other capital grants.
  • $379 million for agriculture, forest fire and flood disaster/emergency assistance, funded from the Sustainability Fund.
  • $285 million from the Sustainability Fund for natural gas rebates.
  • $215 million net increase for in-year program initiatives, primarily for health, education and seniors, funded from the Contingency Allowance.

• Net Revenue (revenue minus expense, prior to Sustainability Fund and Capital Account transfers) is forecast at $2.9 billion. This is $2.6 billion higher than estimated in the budget..
• The Sustainability Fund net assets are forecast at $2.6 billion after allocations for natural gas rebates, emergency/disaster assistance, and transfers to the Debt Retirement Account and Capital Account.

Revenue

Non-Renewable Resource Revenue

Energy prices are considerably higher than energy analysts expected. The increase has been driven by strengthening demand from an improved North American and world economy, continued concerns over inventory and production levels, and concerns over
supply disruptions from political events in countries such as Russia, Venezuela and Iraq. Most analysts expect a correction in both oil and natural gas prices but the timing and degree is uncertain.

The non-renewable resource revenue forecast has been increased to $7.9 billion, an increase of $3.1 billion from the budget estimate. The forecast is based on oil prices averaging US$34.00 for the fiscal year, an $8.00 increase from the budget. For natural gas, the forecast assumes prices will average Cdn$6.01 per mcf, an increase of $1.81 from the budget estimate.

There remains considerable uncertainty over short-term energy prices and revenue. Year-to-date (April-August) oil prices have averaged US$40 per barrel while year-to-date natural gas prices have averaged about Cdn$6.45 per thousand cubic feet (mcf).

For each US$1.00 increase in the average annual oil price above the current forecast, revenue increases by about $65 million. For each 10 cent increase in the average annual natural gas price above the current forecast, revenue increases by about $105 million.

The Fiscal Responsibility Act requires non-renewable resource revenue above $4 billion to be transferred to the Sustainability Fund. This transfer is now forecast at $3.9 billion.

Tax Revenue

Total tax revenue is forecast at $10.5 billion. This is $528 million higher than estimated in the budget.

Personal income tax revenue is forecast at $5.3 billion, $208 million higher than the budget estimate. The increase reflects preliminary data from actual 2003 tax year assessments which indicate revenue for the 2003-04 fiscal year was higher than recorded. The resulting positive prior year adjustment is recorded in 2004-05. This also increases the base forecast for the
current year.

Corporate income tax revenue is forecast at $2.16 billion, $199 million higher than the budget estimate. Stronger energy prices have resulted in a higher corporate profit outlook.

Other tax revenue is forecast at $3.05 billion, $121 million higher than estimated in the budget. The increase reflects higher revenue from freehold mineral rights tax, tobacco tax, fuel tax and insurance taxes.

Changes to seniors' school property taxes, effective January 1, 2005, are expected to reduce school property tax revenue by $1 million in the 2004-05 fiscal year.

Transfers from Government of Canada

Transfers from the Government of Canada are forecast at $3 billion, an increase of $33 million from the budget estimate. Changes from budget include:

• $61 million net increase in agriculture support programs, reflecting higher agriculture income stabilization payments partly offset by reduced crop re-insurance transfers.
• $61 million net decrease in health and social transfers. Base transfers decline when income tax revenue increases.
• $33 million net increase in other transfers. $60 million in expected federal flood assistance is partly offset by delayed transfers for transportation infrastructure..

Investment Income

Investment income is forecast at $1.6 billion, $376 million higher than estimated in the budget. The increase is due to the continued strength in equity markets. The increase includes:

• $307 million increase in Heritage Fund income.
• $40 million increase in endowment funds income.
• $29 million net increase in other investment income.

Other Revenue

Total revenue from all other sources is $58 million lower than estimated in the budget. The decrease is primarily due to the announced exemption for seniors from paying health care insurance premiums, effective October 1, 2004. This is expected to reduce health care insurance premium revenue by $44 million in 2004-05. Partly offseting this is a $3 million increase in
non-seniors premium revenue due to a revised forecast.

Other changes include:

• $23 million reduction in crop insurance premium revenue due to lower crop insurance coverage.
• $10 million decrease in gaming revenue due to delays in new gaming facilities and lower electronic bingo activity.
• $16 million net increase in other revenue, primarily motor vehicle licences and land title fees.

Expense

Total expense is $1.385 billion higher than estimated in the budget, including:

• $664 million for emergency/disaster assistance and natural gas rebates from the Sustainability Fund,
• $503 million for increased capital grants from the Capital Account,
• $215 million net increase for in-year initiatives drawn against the Contingency Allowance, and
• $3 million net increase in dedicated revenue/expense.

Sustainability Fund
Disaster/Emergency Assistance – $379 million is being provided, including:

• $213 million for Bovine Spongiform Encephalopathy (BSE) assistance and research, partly offset by $97 million in increased federal agriculture income stabilization payments,
• $91 million for forest fire-fighting costs, and
• $75 million for flood disaster assistance, partly offset by $60 million in federal assistance.

Natural Gas Rebates – $285 million in rebates are expected to be paid. Winter rebates are paid during the November to March period. This forecast is based on the first tier trigger price ($5.51 to $7.50 per gigajoule) being reached in all five eligible months. The first tier level provides a $1.50 per gigajoule rebate.

Capital Account
Capital grants funded from the Capital Account have been increased by $503 million. As announced in June 2004, $510 million was transferred into the Capital Account from the better than forecast year-end results for the 2003-04 fiscal year. $500 million is being used in 2004-05 to increase health capital grants and $2.5 million is being used for additional infrastructure grants to Banff and Jasper.

Funding From the Contingency Allowance
$260 million was set aside in the budget for in-year, non-emergency initiatives. The Contingency Allowance has been fully committed. In-year initiatives include a $215 million net program expense increase, primarily for health, education and seniors, and $45 million in revenue reduction initiatives for seniors.

Ministry Changes

Agriculture, Food and Rural Development expense has increased $159 million from budget. An additional $213 million has been provided for BSE assistance and research. Partially offsetting this is a $54 million reduction in the costs of crop insurance programs.

Children's Services expense has increased $6 million from budget. Funding for early learning and child care has been increased by $7.5 million reflecting additional federal transfers provided in the 2004 federal budget for children’s services. Partly offsetting this is a $1.5 million transfer from program expense to capital investment.

Finance expense has been increased $2 million from budget for automobile insurance reform and Alberta Pension Administration operating costs.

Gaming expense is down $10 million due to delays in new gaming facilities and lower electronic bingo activity.

Health and Wellness expense has increased $362 million from budget. $200 million has been provided to health authorities for their operating costs. An additional $150 million has been provided from the Capital Account for health capital grants. There is also a $12 million increase for various public health initiatives which are being funded by increased federal health transfers announced in the 2004 federal budget.

Infrastructure expense has been increased by $635 million from the budget estimate. This includes increases of $350 million for health infrastructure and $285 million for forecast natural gas rebates.

Learning expense has increased $52 million from budget to implement the announced initiative to hire new teachers and reduce class sizes.

Municipal Affairs expense has been increased by $78 million from budget. $75 million has been provided for flood disaster assistance. In addition, $2.5 million has been provided for additional infrastructure grants.

Seniors expense has increased $30 million from budget for enhancements to the Alberta Seniors Benefit program. In addition, two revenue reductions will reduce premiums and taxes paid by seniors in 2004-05 by $45 million. Seniors will be exempted from paying health care insurance premiums effective October 1, 2004 and changes will be made to school property taxes paid by
seniors effective January 1, 2005.

Solicitor General expense has increased $3 million from budget for program enhancements to the Victims of
Crime Fund.

Sustainable Resource Development expense is up $91 million from budget as a result of higher forest fire-fighting costs.

Transportation expense is down $22 million from budget primarily due to revised amortization costs for the secondary highway system.

Net Financial and Capital Assets

• Net Assets – Alberta's net assets are forecast at $23.8 billion as of March 31, 2005. This includes nearly $11 billion in capital assets and $5.2 billion in pension obligations.

• Accumulated Debt – Accumulated debt, net of cash set aside in the Debt Retirement Account, is forecast to be eliminated as of March 31, 2005. This is a $3.7 billion reduction from March 31, 2004 and a $3 billion improvement from the budget estimate. At
  March 31, 2005, $3.5 billion will be in the Debt Retirement Account to pay off accumulated debt as it matures.

• Capital Account – The Capital Account is forecast at $639 million as of March 31, 2005. Subsequent to Budget 2004, $510 million from better than forecast 2003-04 fourth quarter results was transferred to the Sustainability Fund and then reallocated to the Capital Account. Withdrawals from the Capital Account have been increased from budget by $589 million ($503 million for capital grants to local authorities and $86 million for capital investment).

• Heritage Fund – The book value of the Heritage Fund is forecast at $11.3 billion as of March 31, 2005, unchanged from budget. This represents the recorded value of Heritage Fund external investments. The fair market value of the Heritage Fund at June 30, 2004 was estimated at $12.1 billion.

• Pension Obligations – Pension obligations are forecast at $5.2 billion, an increase of $22 million from budget and $141 million from March 31, 2004. They are scheduled for elimination under a separate legislative plan and are not subject to the Fiscal Responsibility Act.

Actual Results

For the first three months of 2004-05

Method of Consolidation

This financial summary is prepared on the same basis as used in Budget 2004.

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 the modified equity basis, the equity being computed in accordance with generally accepted accounting principles.

Basis of Financial Reporting

The consolidated fiscal summary reports revenue (including gains and losses from sale of capital assets), expense (including amortization of capital assets), and net revenue.

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 2003-04 figures have been restated where necessary to conform to 2004-05 presentation.

Go to: 2004-05 First Quarter Activity Report