The Second Quarter Fiscal Update consists of two parts – the updated 2004-05 forecast and the actual results for the first six months of the fiscal year (April 1 to September 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 Second Quarter Activity Report
• Go to Highlights (pdf)

• In July 2004, the Province announced that high energy prices will allow an additional $3 billion to be set aside to pay off completely Alberta's remaining accumulated debt.

• Energy prices have continued to increase since the release of the First Quarter Fiscal Update. Oil prices are now expected to average US$42 per barrel for the fiscal year and natural gas prices Cdn$6.85 per thousand cubic feet (mcf).

• Total revenue is now forecast to be $5.7 billion higher than the budget estimate and $1.7 billion higher than the first quarter forecast.

• Partly offsetting the higher revenue is an increase in total expense. Expense is $1.9 billion higher than budgeted and $490 million higher than the first quarter forecast. The increase from budget includes:
  • $830 million for agriculture, forest fire and flood disaster/emergency assistance from the Sustainability Fund,
  • $359 million for natural gas rebates from the Sustainability Fund,
  • $468 million increase in capital grants, primarily for health capital, from the Capital Account,
  • $215 million net increase for in-year initiatives, including funding for health, education and seniors from the Contingency Allowance.

• Net Revenue (revenue minus expense, prior to Sustainability Fund and Capital Account transfers) is forecast at $4.1 billion. This is $3.8 billion higher than estimated in the budget.
• The Sustainability Fund assets are forecast at $3.2 billion (after allocations for natural gas rebates, emergency/disaster assistance, and reallocations to the Debt Retirement Account and Capital Account). This is $667 million higher than the budget estimate of $2.5 billion.

Revenue

Non-Renewable Resource Revenue

Non-renewable resource revenue is forecast at $9.6 billion. This is $4.8 billion higher than the budget estimate and $1.8 billion higher than forecast in the First Quarter Fiscal Update.

The increase has been driven by the dramatic rise in oil and natural gas prices. Oil prices have averaged about US$43.50 a barrel for the first eight months (April to November) of the fiscal year. This is 45% higher than for the same time period last year. Natural gas prices have averaged about Cdn$6.50 per mcf for the first eight months. This is 15% higher than for the same time period last year. Higher prices have been the result of increased demand, little spare production capacity, and concerns over supply disruptions.

Natural gas royalties are forecast at $6.8 billion, up $3.5 billion from the budget estimate. Natural gas prices are expected to average Cdn$6.85 per mcf for the fiscal year. This is $2.65 higher than budgeted and 84 cents higher than forecast in the First Quarter Fiscal Update.

Total oil royalties are forecast at $1.7 billion, $1.1 billion higher than budget. The oil price is expected to average US$42.00 per barrel for the year, a $16 increase from the budget and $8 higher than forecast in the First Quarter Fiscal Update.

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 $5.6 billion.

Tax Revenue

Total tax revenue is forecast at $10.1 billion. This is $114 million higher than estimated in the budget, but $414 million lower than reported in the First Quarter Fiscal Update.

Personal income tax revenue is forecast at $4.8 billion, $252 million lower than estimated in the budget, and $460 million lower than the first quarter forecast. At first quarter, federal 2003 tax assessment information indicated higher-than-estimated revenue. However, it now appears the unexpected strength in the preliminary assessment data was due to faster processing of assessments rather than stronger assessments.

Corporate income tax revenue is forecast at $2.2 billion, $199 million higher than the budget estimate, and unchanged from first quarter forecast. Strong energy prices have boosted the corporate profit outlook.

Other tax revenue is forecast at $3.1 billion, $167 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 to increase by $299 million to $3.3 billion, comprising:

• $272 million net increase in federal agriculture transfers. $294 million for Bovine Spongiform Encephalopathy (BSE) related assistance is partly offset by lower crop reinsurance transfers.
• $27 million net increase in other transfers. $60 million in expected federal flood disaster assistance is partly offset by delayed transfers for transportation infrastructure and other reductions.

The second quarter forecast does not include the expected increase in federal health transfers of about $200 million related to the 2004 Canada Health Accord. Details concerning this transfer have not yet been finalized.

Investment Income

Investment income is forecast at $1.6 billion, $391 million higher than estimated in the budget. The increase is due to:

• $307 million increase in Heritage Fund income,
• $40 million increase in endowment funds income, and
• $44 million net increase in other investment income.

Other Revenue

Total revenue from all other sources is $40 million higher than estimated in the budget. Major changes from budget include:

• $24 million increase in timber royalties and fees due to higher commodity prices for lumber products,
• $22 million increase in net gaming revenue related to higher slot revenues and lower operational costs,
• $35 million net decrease in health care insurance premiums. The exemption for seniors from paying premiums effective October 1, 2004 will reduce revenue by $44 million. This is partly offset by an increased forecast for non-senior premiums revenue,
• $29 million net increase in other revenue.

Expense

Total expense is $1.9 billion higher than the budget estimate. The increase includes:

• $1.2 billion for emergency/disaster assistance and natural gas rebates from the Sustainability Fund,
• $468 million in increased capital grants from the Capital Account,
• $215 million net increase for in-year initiatives drawn against the Contingency Allowance, and
• $26 million increase in dedicated revenue/expense.

Sustainability Fund
Disaster/Emergency Assistance – $830 million is being provided, an increase of $451 million from first quarter:

• $630 million net increase for BSE-related assistance, partially offset by $294 million in increased federal BSE-related transfers,
• $124 million for forest fire-fighting costs, and
• $76 million for flood disaster assistance, partly offset by $60 million in increased federal transfers.

Natural Gas Rebates – $359 million in rebates are now expected to be paid during the November to March period, an increase of $74 million from the first quarter forecast. Rebates are forecast to be paid in all five eligible months, with the first tier level reached in three of the months and the second tier level in two.

Capital Account
As reported in the first quarter, capital grants funded from the Capital Account have been increased by $503 million. This included $500 million for health capital grants and $2.5 million for infrastructure grants to Banff and Jasper.

Due to changes in construction schedules, $460 million of the health grants will now be provided in 2004-05 and $40 million in 2005-06. Also, in October, a $50 million rural supportive living capital program was announced, with $5 million being funded in 2004-05 from the Capital Account and $45 million in 2005-06.

The total net increase in capital grants from the Capital Account in 2004-05 is $468 million.

Funding From the Contingency Allowance
As reported in the first quarter, the $260 million Contingency Allowance budgeted for in-year, non-emergency initiatives has been fully committed. This included $215 million, primarily for health, education and seniors, and $45 million in revenue reductions in health care insurance premiums and property taxes paid by seniors.

Non-emergency ministry program spending increases from first quarter have been offset by lower program spending in other areas or reflect increases in dedicated revenue/expense.

Ministry Changes

Agriculture, Food and Rural Development expense is $592 million higher than budgeted. $630 million has been provided for BSE-related costs, a $417 million increase from the first quarter forecast. Partially offsetting this is a net $38 million reduction in crop insurance and other programs.

Health and Wellness expense is $362 million higher than budgeted. As noted in the first quarter, $200 million is for health authority operating expense, $150 million for capital grants, and $12 million for various public health initiatives funded by federal transfers.
Infrastructure expense is $663 million higher than budgeted. $359 million is being provided for natural gas rebates and $315 million for health infrastructure. This is partially offset by a net $11 million decrease related to transfers to capital investment and other changes.

Learning expense has increased by $51 million. As reported in the first quarter, a $52 million increase was provided to hire new teachers and reduce class size. This is partially offset by a $1 million transfer from program expense to capital investment.

Municipal Affairs expense has increased by $78 million from budget. As reported in the first quarter, the increase is for flood disaster assistance and infrastructure grants to Banff and Jasper.

Seniors expense has increased $34 million from budget, reflecting the $30 million provided for Alberta Seniors Benefit enhancements and $4.5 million for supportive living projects previously reported in Infrastructure.

Sustainable Resource Development expense has increased $124 million from budget for forest fire-fighting costs. This is $33 million higher than the first quarter forecast.

Other ministry increases from budget include:

Legislative Assembly – $3 million for the Senate nominee election.

Energy – $3 million for well abandonment costs and other EUB expenses fully offset by industry levies.

Human Resources and Employment – $5 million for Workplace Health and Safety and the Labour Market Agreement for Persons with Disabilities, fully offset by increased WCB and federal transfers.

Justice – $2 million to meet demands under the Child, Family and Youth Enhancement Act and the Criminal Division of the Calgary Provincial Court.

Solicitor General – $6 million increase. $3 million for the Victims of Crime Fund and $3 million for Project KARE, an RCMP task force.

Net Financial and Capital Assets

• Net Assets – Alberta's net assets are forecast at $25.1 billion as of March 31, 2005. This includes nearly $11 billion in capital assets and is net of $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 $674 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 $554 million ($468 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 September 30, 2004 was estimated at $11.9 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 six 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 reclassified where necessary to conform to 2004-05 presentation.

Go to: 2004-05 Second Quarter Activity Report