The First Quarter Fiscal Update consists of two parts – the updated 2005-06 forecast and the actual results for the first three months of the fiscal year (April 1 to June 30, 2005).

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• 2005-06 Forecast
  • Highlights
  • Revenue
  • Expense
  • Alberta Sustainability Fund
  • Capital Plan
  • Net Financial and Capital Assets
  • Capital Account
  • 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)

• Energy prices reached record highs in August. They are considerably higher than expected by most energy analysts or estimated in the budget.

• Energy price assumptions for the fiscal year have been increased to US$50 per barrel for oil and Cdn$6.01 per gigajoule for natural gas. Current market conditions suggest there is still considerable upside potential to these revised assumptions.

• Based on the revised energy price assumptions, total revenue is forecast to be $2 billion higher than estimated in the budget. Partly offsetting this is a $760 million increase in total expense, including:
  • $516 million increase in capital grants funded from the Capital Account. This includes funding for schools, post-secondary facilities, Water for Life projects, affordable housing and a $100 million contingency for small capital projects.
  • $226 million increase in disaster/emergency assistance, primarily for forest fires and floods.
  • $18 million net increase in other expense.

• Capital investment in government-owned projects, primarily for provincial highways, has been increased by $232 million. In total, 2005-06 Capital Plan spending (capital grants plus capital investment) is forecast to reach nearly $4 billion.
• Net Revenue (revenue less expense, prior to Sustainability Fund and Capital Account transfers) is forecast at $2.8 billion. This is $1.2 billion higher than estimated in the budget.

• The $2.8 billion surplus is primarily allocated to the Capital Account to help pay for the cost of capital projects in future years, and to the Heritage Fund and other endowments. The Sustainability Fund balance is currently forecast to remain at the budgeted $2.5 billion level.

Revenue

Non-Renewable Resource Revenue

Energy prices are much higher than energy analysts expected at the time the budget was prepared. The higher prices are due to a growing world demand for crude oil, the fear of supply disruptions and the absence of spare production capacity to offset any disruptions. Year-to-date (April to August), oil prices have averaged US$56.67 per barrel and natural gas prices have averaged Cdn$6.71 per gigajoule.

Non-renewable resource revenue is forecast at $9 billion, an increase of $1.3 billion from the budget estimate. The increase is based on oil prices averaging US$50.00 per barrel over the fiscal year, an $8.00 increase over the budget estimate. Natural gas prices are assumed to average Cdn$6.01 per gigajoule, an increase of 41 cents from the budget estimate.

Total oil royalties are forecast at $1.9 billion, $562 million higher than estimated in the budget while natural gas royalties are forecast at $6.1 billion, up $730 million from budget. Other non-renewable resource revenue is forecast at $1 billion, $50 million higher than budget.

The Fiscal Responsibility Act requires that non-renewable resource revenue above $4.75 billion be transferred to the Sustainability Fund. This transfer is now forecast to be $4.3 billion.

Tax Revenue

Personal income tax revenue is $83 million higher than estimated in the budget and corporate income tax revenue is $118 million higher. This reflects stronger-than-expected economic activity resulting primarily from higher energy prices.

Other tax revenue is forecast at $3.2 billion, $23 million higher than estimated in the budget. The increase reflects higher revenue from the freehold mineral rights tax and insurance taxes partially offset by lower tobacco tax revenue.

Transfers from Government of Canada

Transfers from the Government of Canada are $102 million higher than budgeted. The increase consists of:

• $122 million for flood disaster assistance.
• $70 million for the Early Learning and Child Care Agreement (ELCC). The specific allocation of these funds has not yet been determined and no related expense increases have been included in this update.
• $19 million for the New Deal for Cities and Communities and other infrastructure.
• $9.5 million for Phase II of the Canada/Alberta Affordable Housing Agreement.
• $93 million decrease in health transfers, of which $62 million is due to some of the allocation for the Wait Times Reduction Fund being recognized in 2004-05 rather than in 2005-06, and $31 million is a result of higher income tax revenue.
• $20 million decrease in Canada Social Transfer due to higher income tax revenue.
• $6 million reduction in federal agriculture transfers for crop and hail insurance.

Investment Income

Investment income is forecast at $1.7 billion, $310 million higher than estimated in the budget. This increase is due mainly to stronger-than-expected equity market performance. The increase consists of:

• $250 million in Heritage Fund income.
• $38 million increase in endowment fund income.
• $20 million increase in Sustainability Fund income, due to higher temporary balances in the Fund.
• $2 million net increase in other investment income.

Other Revenue

Other revenue is $19 million higher than budgeted. The increase comprises:

• $10 million increase in gaming revenue related to higher slot and video lottery terminal revenue.
• $12 million net increase in timber rentals and fees due to higher-than-expected market prices for solid wood products and a revenue reduction from updating Alberta’s Softwood Stumpage System, effective January 1, 2006. This update reduces 2005-06 revenue by $6 million, which is charged to the Contingency Allowance.
• $9 million increase in health care insurance premiums revenue.
• $18 million decrease in crop and hail insurance premiums due to a $10 million reduction in Spring Price Endorsement premiums, charged to the Contingency Allowance, and to lower commodity prices and participation rates.
• $6 million net increase in other revenue.
  

Expense

Total expense is $760 million higher than the budget estimate. Changes include:

• $516 million for increased capital grants from the Capital Account.
• $226 million for increased emergency/disaster assistance from the Sustainability Fund.
• $30 million net increase in dedicated revenue/expense.
• $3 million net increase for in-year initiatives drawn against the Contingency Allowance.
• A $15 million decrease in debt servicing costs.

Sustainability Fund
Disaster/Emergency Assistance – $359 million is being provided, including:

• $151 million for flood disaster assistance, partially offset by $122 million in federal transfers.
• $148 million for Bovine Spongiform Encephalopathy (BSE) assistance, an increase of $15 million from budget, partially offset by $34 million in federal transfers.
• $57 million for forest fire-fighting costs.
• $3 million for detection and control of mountain pine beetle infestations.

The costs of flood assistance, forest fires and mountain pine beetle infestations are to be funded through the Sustainability Fund, pending declaration of disasters and emergencies under the Fiscal Responsibility Act.

Natural Gas Rebates – $285 million in rebates are forecast to be paid, unchanged from the budget estimate. 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 provides a $1.50 per gigajoule rebate.

Capital Account
Capital grants funded from the Capital Account have been increased by $516 million: $352 million for schools and post-secondary capital projects; $100 million for a contingency for small capital projects; $54 million for the Water for Life strategy; $9.5 million for Alberta’s contribution under the Canada/Alberta Affordable Housing Agreement.

Funding From the Contingency Allowance
$248 million was set aside in the budget for in-year, non-emergency initiatives. In-year initiatives include a $24 million increase for school operations and maintenance and $19 million for increased Revenue Insurance Coverage co-payments. These expenses are partly offset by $36 million in lapses in various ministries and a net of $4 million in transfers from operating expense to capital investment. $16 million in in-year revenue reduction initiatives have also been charged against the Contingency Allowance. There is $229 million remaining in the Contingency Allowance.

Ministry Changes

Agriculture, Food and Rural Development –$10 million net increase from budget This includes a $15 million increase for BSE-related initiatives, a $19 million increase in Revenue Insurance Coverage co-payments and a $5 million increase in dedicated revenue/expense. Offsetting this is a $28 million decrease in crop insurance and other lapses and a $1 million transfer from operating expense to capital investment.

Education – $24 million increase for school operations and maintenance.

Infrastructure and Transportation– $527 million increase from budget. This includes $207 million for school capital projects, $145 million for post-secondary facilities, $100 million for a contingency for small capital projects, $54 million for projects in the Water for Life strategy and $21 million in dedicated revenue/expense increases for the New Deal for Cities and Communities and for the Calgary Children's Hospital interchange.

Municipal Affairs – $151 million increase for flood disaster assistance. The increase relates to the 2005 Southern Alberta Disaster Recovery Program, which is partly offset by a $122 million increase in federal transfers, and the 2005 Lesser Slave River Disaster Recovery Program.

Seniors and Community Supports – $19 million increase for Phase II of the Canada/Alberta Affordable Housing Agreement, which is partly offset by a $9.5 million increase in federal transfers.

Sustainable Resource Development – $60 million increase, consisting of $57 million for higher forest fire-fighting costs and $3 million to detect and control mountain pine beetle infestations.

Debt Servicing Costs
Debt servicing costs have decreased $15 million from budget due to lower borrowings and lower interest rates.

Net Financial and Capital Assets

• Net Assets – Net assets are forecast at $28.7 billion as at March 31, 2006. This includes capital assets of $11.7 billion.

• Accumulated Debt/Debt Retirement Account – The Fiscal Responsibility Act requires assets in the Debt Retirement Account to be equal to or greater than the remaining unmatured accumulated debt.

• Capital Account – The Capital Account is forecast at $3.3 billion, a $1.1 billion increase from budget.

• Heritage Fund – The book value of the Heritage Fund (value of external investments) is forecast at $11.8 billion, an increase of $484 million from March 31, 2005. The increase includes allocations for the Advanced Education endowment and inflation proofing, and changes to internal holdings of provincial corporation debt.
  

Actual Results

For the first three months of 2005-06

Method of Consolidation

This financial summary is prepared on the same basis as used in Budget 2005.

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 2004-05 figures have been restated where necessary to conform to the 2005-06 presentation.

Go to: 2005-06 First Quarter Activity Report