The Third Quarter Fiscal Update consists of two parts – the updated 2004-05 forecast and the actual results for the first nine months of the fiscal year (April 1 to December 31, 2004).

On November 24, 2004, a restructuring of government ministries was announced. This changed the responsibilities of some ministries, created new ministries and eliminated others. The budget and quarterly information has been restated to reflect this new government structure.

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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 Third Quarter Activity Report
• Go to Highlights (pdf)

• This year’s higher-than-expected revenue will be used to pay off Alberta’s remaining accumulated debt.

• Total revenue is forecast to be $5.8 billion higher than the budget estimate and $115 million higher than the second quarter forecast. The increase from budget is primarily due to high energy prices.

• Oil prices are expected to average US$43.50 per barrel for the fiscal year and natural gas prices Cdn$6.39 per thousand cubic feet (mcf).

• Partly offsetting the higher revenue is an increase in total expense. Expense is $1.8 billion higher than budgeted but $83 million lower than the second quarter forecast. The increase from budget includes:
  • $820 million for agriculture, forest fire and flood disaster/emergency assistance from the Sustainability Fund,
  • $314 million for natural gas rebates from the Sustainability Fund,
  • $468 million increase in capital grants, primarily for health capital, from the Capital Account,
  • $208 million net increase for in-year program initiatives, primarily for health, education and seniors from the Contingency Allowance, and
  • $20 million net increase in dedicated revenue/expense.

• Net Revenue (revenue minus expense, prior to Sustainability Fund and Capital Account transfers) is forecast at $4.3 billion. This is $4 billion higher than estimated in the budget.
• $3.7 billion of the 2004-05 net revenue (surplus) has been allocated to the Debt Retirement Account to repay Alberta’s remaining accumulated debt as it comes due.

• The Sustainability Fund is forecast to reach $3.5 billion at March 31, 2005. Potential reallocations of the Sustainability Fund assets above $2.5 billion will be addressed in Budget 2005.

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 essentially unchanged from the second quarter forecast.

The increase has been driven by the dramatic rise in oil and natural gas prices. Oil prices are forecast to average a record US$43.50 a barrel for 2004-05. This is 39% higher than the average for 2003-04. Natural gas prices are forecast to average Cdn$6.39 per mcf for 2004-05. This is 11% higher than the average for 2003-04. Higher prices have been the result of increased demand, little spare production capacity, and concerns over supply disruptions.

Natural gas royalties are forecast at $6.5 billion, up $3.1 billion from the budget estimate. The price forecast of Cdn$6.39 per mcf is $2.19 higher than budgeted but 46 cents lower than forecast in the Second Quarter Fiscal Update.

Total oil royalties are forecast at $1.9 billion, up $1.2 billion from the budget estimate. The price forecast of US$43.50 per barrel is $17.50 higher than budgeted and $1.50 higher than forecast in the Second Quarter Fiscal Update.

Other non-renewable resource revenue is forecast at $1.3 billion. This is $507 million higher than the budget estimate. The increase is due to higher revenue from bonuses and sales of Crown leases.

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, $162 million higher than budget and $48 million higher than forecast at second quarter.

Personal income tax revenue is forecast at $4.6 billion. This is $436 million lower than estimated in the budget. The lower forecast reflects updated federal tax assessment information for the 2003 tax year. This updated information indicates that reported revenue for previous fiscal years was over-estimated by $243 million. As a result, a negative adjustment is required to be made against 2004-05 tax revenue. The 2004-05 forecast was also lowered to reflect this lower base.

Corporate income tax revenue is forecast at $2.4 billion, an increase of $396 million from budget. The increase is based on stronger corporate profits, mainly due to substantially higher energy prices.

Other tax revenue is forecast at $3.1 billion. This is $202 million higher than estimated in the budget. The increase reflects higher revenue from freehold mineral rights, tobacco, insurance and fuel taxes.

Transfers from Government of Canada

Transfers from Government of Canada are forecast at $3.1 billion. This is $178 million higher than the budget estimate and consists of: :

• $208 million net increase in federal agriculture transfers. $238 million for Bovine Spongiform Encephalopathy (BSE) related assistance is partly offset by lower crop insurance and reinsurance transfers.
• $30 million net decrease in other transfers. A decrease in the Canada Social Transfer based on updated information for prior years and delayed transportation grants are partly offset by higher health transfers and flood disaster assistance.

Investment Income

Investment income is forecast at $1.7 billion, $505 million higher than the budget estimate. The increase is due to:

• $383 million increase in Heritage Fund income resulting from realized capital gains and strengthening equity markets,
• $60 million increase in endowment fund income, and
• $62 million increase in other investment income due to higher asset balances.

Other Revenue

Total revenue from all other sources is $112 million higher than estimated in the budget. Major changes from budget include:

• $50 million increase in net gaming revenue related to higher slot/VLT revenue and lower operating costs.
• $34 million increase in timber royalties and fees due to higher commodity prices for lumber products.
• $20 million increase in Alberta Treasury Branches net revenue related to a decreased provision for credit losses.
• $30 million 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.
• $38 million net increase in other revenue.

Expense

Total expense is $1.8 billion higher than the budget estimate. The increase includes:

• $1.1 billion for emergency/disaster assistance and natural gas rebates from the Sustainability Fund,
• $468 million for increased capital grants from the Capital Account,
• $208 million net increase for in-year initiatives drawn against the Contingency Allowance, and
• $20 million net increase in dedicated revenue/expense.

Sustainability Fund
Disaster/Emergency Assistance – $820 million is being provided, including:

• $672 million increase for BSE assistance and prion research, partially offset by $238 million in increased federal BSE-related transfers,
• $124 million for forest fire-fighting costs, and
• $24 million for flood disaster assistance, partly offset by $12 million in federal transfers.

Natural Gas Rebates – $314 million. Rebates are being paid in all five eligible months (November to March). The November rebate was paid at the second tier level and the other four months are at the first tier.

Capital Account
As reported in the second quarter, capital grants funded from the Capital Account are forecast to increase by $468 million, almost entirely for health capital.

Funding From the Contingency Allowance
The Contingency Allowance was fully committed in the first quarter for in-year non-emergency spending and tax reduction initiatives. Non-emergency spending increases reported in the second and third quarters have been more than offset by lower spending in other areas, or reflect changes to dedicated revenue and expense.

Ministry Changes

Advanced Education – $4 million net increase from budget. Increased funding for post-secondary institutions, and other increases, are partly offset by lower student loan costs.

Agriculture, Food and Rural Development – Increase of $490 million from budget but $102 million lower than the second quarter forecast. $634 million provided for BSE-related costs, is partially offset by a $144 million reduction in crop insurance and other programs.

Children's Services – $25 million increase from budget for child welfare, early learning and child care, implementation of the Child, Youth and Family Enhancement Act, and prevention of family violence and bullying.

Education – $65 million increase from budget to hire teachers, reduce class sizes and purchase additional text books and other classroom resources.

Environment – $8 million increase from budget, primarily for waste and water management programs.

Gaming – $33 million net increase from budget. $40 million in capital grants for major fairs and $5 million in tsunami aid are partly offset by a $12 million reduction resulting from delays in new gaming facilities.

Health and Wellness – $350 million net increase from budget, reflecting $200 million to health authorities for operating expenses and $150 million, from the Capital Account, for health capital grants.

Human Resources and Employment – $40 million increase from budget. There is a net $20 million increase for income support and workplace health and safety programs. $20 million has also been provided to assist departments, as required, with higher-than-budgeted costs of salaries, wages and employee benefits.

Infrastructure and Transportation – $586 million increase from budget. This includes $314 million for natural gas rebates and a net increase of $298 million for health infrastructure. These increases are partly offset by a net $26 million decrease in other program spending.

Innovation and Science – $40 million increase from budget. $38 million has been allocated for prion research as part of the BSE disaster assistance and there is a net $2 million in other increases.

Justice – $10 million for increased judicial compensation, implementation of the Child, Youth and Family Enhancement Act, Provincial Court caseloads and dedicated revenue/expense for ticket processing.

Municipal Affairs – $27 million increase from budget for flood disaster assistance and infrastructure grants to Banff and Jasper. This is $51 million lower than reported in the second quarter due to revised estimates for non-insurable flood damage.

Seniors and Community Supports – $34 million increase from budget for Alberta Seniors Benefit enhancements and for supportive living projects in Vegreville, Wainwright and Vermilion. The announced assistance to senior homeowners for school property taxes beginning in 2005 will now be provided through grants from the Ministry in 2005-06.

Solicitor General – $13 million increase from budget for correctional services, the Victims of Crime Fund and the RCMP Project KARE task force.

Sustainable Resource Development – $124 million increase from budget for forest fire-fighting costs.

Net Financial and Capital Assets

• Net Assets – Alberta's net assets are forecast at $25.2 billion as of March 31, 2005. This includes $10.9 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. 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 December 31, 2004 was estimated at $12.2 billion.

• Pension Obligations –Pension obligations are forecast at $5.2 billion, an increase of $39 million from budget and $158 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.

Government Restructuring

As a result of government restructuring announced on November 24, 2004, the responsibilities of ministries changed and new ministries were formed. This financial summary is prepared on the basis as if the ministries had always been assigned their current responsibilities.

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

Go to: 2004-05 Third Quarter Activity Report