2005-06 Quarterly Budget Report:
Second
Quarter Fiscal
Update
Released: November
16, 2005
Table of Contents
The Second Fiscal Update consists
of two parts – the updated 2005-06 forecast and the actual
results for the first six months of the fiscal year (April 1 to
September 30, 2005).
2005-06
Forecast
Highlights
- Total revenue, after deducting the $1.3 billion cost of the
resource rebates, is forecast to be $5.8 billion higher than estimated
in the budget.
- Total expense
is forecast to increase by nearly $1.5 billion from budget, including:
-
$481 million for capital grants funded from the Capital Account.
- $389
million in disaster/emergency funding related to BSE, wildfires,
floods and pine beetles.
- $375
million in additional natural gas rebates.
- $207
million net increase in other expense.
- Capital investment
in government-owned projects has been increased by $281 million.
- In total,
2005-06 Capital Plan spending (capital grants plus capital investment)
is forecast to reach $4 billion, $801 million higher than budgeted.
This includes only the 2005-06 cost of recent multi-year commitments
for health, education and other infrastructure.
- Net Revenue
(revenue less expense) is forecast at $5.9 billion, $4.4 billion
higher than budgeted.
- $3.4 billion
of the surplus has been allocated to the Capital Account to help
pay for capital commitments in future years and $1.6 billion has
been saved in the Heritage Fund and endowment funds. The Sustainability
Fund is forecast at $2.9 billion, $380 million higher than budgeted.
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Revenue
Non-Renewable
Resource Revenue
Non-renewable resource
revenue is forecast at a record $13.2 billion. This is an increase
of $5.5 billion from budget and $4.2 billion from first quarter.
Natural gas royalties
are forecast at $9.1 billion, an increase of $3.6 billion from the
budget, and up $2.9 billion from the first quarter forecast. Natural
gas prices are forecast to average Cdn$8.50 per gigajoule, an increase
of $2.90 from the budget estimate and $2.49 higher than first quarter.
Total oil royalties
are forecast at $2.4 billion, $1.1 billion higher than budget and
up $568 million from first quarter. The increase is based on oil
prices averaging US$60 per barrel for the fiscal year, up $18 from
budget and $10 from first quarter.
Other non-renewable
resource revenue, primarily bonuses and sales of Crown
leases, is forecast at $1.7 billion, $770 million higher than the
budget estimate and $720 million higher than first quarter.
The higher oil price is
due to growing world demand, concern over supply disruptions and
absence of spare production capacity. Natural gas prices have been
driven up by increasing U.S. demand due to a warmer-than-normal
summer, production decreases and concerns over winter supply because
of hurricanes. Year-to-date (April to mid-November), oil prices
have averaged just under US$59 and natural gas prices approximately
Cdn$8.25.
The Fiscal Responsibility
Act requires that non-renewable resource revenue in excess
of $4.75 billion be transferred to the Sustainability Fund. This
transfer is now forecast to be $8.5 billion.
Tax
Revenue
Personal income
tax revenue is forecast at $5.7 billion, up $550 million
from the budget. The increase reflects preliminary data for the
2004 tax year assessments which indicate revenue for the 2003-04
and 2004-05 fiscal years was about $268 million higher than recorded.
The resulting positive prior years adjustment is recorded in 2005-06.
This also increases the base forecast for the current year.
Albertans are being provided
a $400 per person resource rebate this year. The
rebate is a refundable tax credit, and the cost will be reported
as a reduction to personal income tax revenue. The rebate will not
be treated as taxable income. $1.3 billion is expected to be distributed
to approximately 3.25 million Albertans beginning January 2006.
Corporate income
tax revenue is forecast at $2.6 billion, up $318 million
from budget. Higher energy prices have contributed to a stronger
corporate profit outlook.
Other tax revenue
is forecast at $3.3 billion, a $57 million increase from budget.
Increases in revenue from freehold mineral rights and insurance
taxes are partially offset by decreases in tobacco and fuel tax
revenue.
Transfers
from Government of Canada
Transfers from the Government
of Canada are forecast at $3.5 billion, a $40 million increase from
budget.
Health transfers and the
Canada Social Transfer are $162 million lower than budgeted. This
reflects the allocation of some of the Wait Times Reduction Fund
to 2004-05 rather than 2005-06, and the impact of higher provincial
income tax revenue on federal transfers.
More than offsetting this
is a $202 million net increase in other transfers, including $111
million for flood disaster assistance, $70 million under the Early
Learning and Child Care Agreement (ELCC), and a net $21 million
in other transfers.
Investment
Income
Investment income is forecast
at $1.9 billion, up $546 million from budget. The increase reflects
stronger-than-expected Canadian equity market performance and higher
returns on fixed-income instruments.
Other
Revenue
Other revenue is forecast
to be $103 million higher than budgeted. The increase comprises:
- $34 million increase in net gaming
revenue
- $22 million increase in Alberta
Treasury Branches net revenue due to a lower loan loss provision.
- $21 million increase in health care
insurance premiums.
- $16 million increase in timber rentals
and fees due to higher-than-expected market prices for solid wood
products. This is net of the revenue reduction of $6 million from
updating Alberta's Softwood Stumpage System, effective January
1, 2006.
- $14 million decrease in crop insurance
premiums due to a $10 million reduction in Spring Price Endorsement
premium, and lower commodity prices and participation rates.
- $24 million net increase in other
revenue.
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Expense
Total expense is $1.5 billion higher
than the budget estimate. Changes include:
- Emergency/disaster assistance –
$389 million increase.
- Natural gas rebates – $375
million increase.
- Capital grants (from Capital Account)
– $481 million increase.
- In-year initiatives (from Contingency
Allowance) – $160 million net increase.
- Dedicated revenue/expense –
$72 million increase.
- Debt servicing costs – $25
million decrease..
Sustainability
Fund
Disaster/Emergency Assistance – $522 million
is being provided, a $389 million increase from budget. The increase
from budget includes:
- $139 million for flood
disaster assistance, partially offset by $111 million in federal
transfers.
- $170 million for Bovine
Spongiform Encephalopathy (BSE) assistance. Total BSE assistance
is $303 million. This is partly offset by $34 million in federal
transfers.
- $75 million for forest
fire-fighting costs.
- $5 million for detection
and control of mountain pine beetle infestations.
Natural Gas Rebates
– $660 million in rebates are forecast to be paid, a $375
million increase from budget. The increase reflects higher natural
gas prices which will trigger higher rebate levels and the addition
of October as an eligible month for rebates. It is expected that
a rebate of at least $3.25 per gigajoule will be paid in each eligible
month (October to March).
Capital
Account
Capital grants funded from the Capital Account have been increased
by $481 million from budget. This includes increased grants for
school and post-secondary capital projects; supportive living/affordable
housing and lodge renovations; centennial projects; health facilities;
water/wastewater management.
Funding
From the Contingency Allowance
$176 million of the $248 million budgeted Contingency Allowance
has been committed. This includes a net $160 million for program
spending initiatives and $16 million for in-year revenue reduction
initiatives.
Ministry
Changes
Advanced Education
– $83 million increase from budget primarily due to higher
capital grants for post-secondary institutions. The increase is
$61 million lower than reported in the first quarter as some of
the capital grants included in the first quarter forecast will not
be required until the 2006-08 period.
Agriculture, Food
and Rural Development – $262 million increase from
budget comprising $170 million in BSE support initiatives and $92
million for income stabilization/insurance programs and other changes.
Children's Services
– $36 million increase for Early Learning and Child
Care, fully offset by federal transfers.
Community Development
– $22 million increase from budget, for increased
capital grants to the Calgary Zoo, and support for a film on the
Battle of Passchendaele.
Education
– $75 million increase from budget for school operations and
maintenance, new modular classrooms and relocation of portables,
capital grants and increased transportation fuel costs. The increase
is $157 million lower than reported in the first quarter as some
of the capital grants included in the first quarter forecast will
not be required until the 2006-08 period.
Gaming
– $75 million increase from budget, consisting of $70 million
for Edmonton Northlands and Calgary Exhibition and Stampede and
$10 million for world disaster assistance, partially offset by $5
million in lapses.
Health and Wellness
– $65 million increase in capital grants for health
facilities reflecting the 2005-06 installment of the $1.4 billion
health capital commitment.
Infrastructure
and Transportation – $533 million increase from budget.
This includes a $375 million increase for natural gas rebates; $127
million for increased capital grants for water, wastewater and Water
for Life and other capital projects; and $31 million for higher
operations and maintenance costs.
Municipal Affairs
– $139 million for flood disaster assistance, partly offset
by a $111 million increase in federal transfers.
Seniors and Community
Supports – $109 million increase from budget for
rural supportive living/affordable housing and lodge renovations,
partly offset by a $9.5 million increase in federal transfers.
Sustainable Resource
Development – $80 million increase, consisting of
$75 million for higher forest fire-fighting costs and $5 million
for detection and control of mountain pine beetle infestations.
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Alberta
Sustainability Fund
Assets
of the Sustainability Fund
The assets of the Fund are forecast at $2.9 billion after transfers
to offset the costs of emergencies, disasters, natural gas rebates
and the cost of the Alberta 2005 Resource Rebates.
Sustainability
Fund Transfers
- Non-renewable resource
revenue – The Fiscal Responsibility Act
requires resource revenue in excess of $4.75 billion be transferred
to the Fund. $8.5 billion is to be transferred.
- Other net transfers –
$1.6 billion in other transfers, which include revenue increases
(excluding resource revenue, revenue reductions charged to the
Contingency Allowance or the Sustainability Fund, and dedicated
revenue/expense changes), and reductions in debt servicing costs.
- Withdrawals –
$2.5 billion is to be transferred from the Fund for the costs
of the Alberta 2005 Resource Rebates, emergency/disaster assistance
and natural gas rebates. The Fiscal Responsibility Act is being
amended to allow the Sustainability Fund to offset the cost of
the Alberta 2005 Resource Rebates.
Adjustments
The net transfer to the Fund is adjusted
for:
- Cash accruals (timing differences between when cash is accrued
and when it is received) and non-cash expenses/revenue. In 2005-06,
these adjustments are $1.2 billion primarily due to the three-month
delay in receiving cash from natural gas royalties.
- Retained income of funds and agencies, primarily Alberta Treasury
Branches.
- Capital cash requirements for capital investment, which are
partly met through a transfer from the Capital Account.
Allocation
$380 million has been left in the Fund
above the $2.5 billion budgeted target. $7.5 billion has been allocated
as follows:
- Capital Account – $5.9 billion
allocation of which $2.5 billion is being used for capital grants
and capital investment in 2005-06 and $3.4 billion is being held
to pay for capital costs in future years.
- Savings – $1.6 billion allocation
to the Heritage Fund and other endowment funds.
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Capital
Plan
The 2005-06 Capital Plan
is forecast to reach $4 billion, $801 million higher than budgeted.
This includes capital grants to local authorities and capital investment
in provincial government-owned projects.
In addition, commitments
have been made to provide increased capital support for health,
education, highways and other infrastructure in future years. Funds
for these commitments have been added to the Capital Account from
this year’s surplus. The Capital Account is forecast to have
assets of $4.1 billion at the end of the 2005-06 fiscal year.
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Municipal
Infrastructure Support – Total allocation of
$1.1 billion, $74 million higher than budgeted. The increase
includes $54 million for water/wastewater and Water for Life
projects, $17 million for the New Deal for Cities and Communities
and $3 million for other infrastructure support.
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Provincial
Highway Network – Total allocation of $880 million,
an increase of $196 million from budget. This includes $100
million to accelerate construction projects in resource development
areas, $30 million as part of the $200 million program to accelerate
construction in the Fort McMurray area, and $66 million for
increases in other areas, including amounts carried over from
previous years and a contingency for cost increases.
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Health Facilities
and Equipment – Total allocation of $626 million,
an increase of $65 million from budget. The increase represents
the first year of the announced $1.4 billion in increased support
for health facilities capital.
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Community
Facilities and Centennial Projects – Total allocation
of $266 million, an increase of $90 million from the budget.
The increase includes funding for Edmonton Northlands, Calgary
Exhibition and Stampede, Calgary Zoo and other increases.
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Schools
– Total allocation of $243 million, an increase of $42
million from budget. This is down $188 million from the first
quarter forecast as some of the increase reported in the first
quarter will not be required until the 2006-08 period.
-
Post-Secondary
Facilities – Total allocation of $191 million,
an increase of $80 million from the budget. This is down $65
million from the first quarter forecast as some of the increase
reported in the first quarter will not be required until the
2006-08 period.
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Other Infrastructure
Programs –Total allocation of $666 million, an
increase of $254 million from budget. The increase includes
a $100 million capital contingency for small capital projects,
and increased funding for rural supportive living, affordable
housing partnerships, Phase II of the Canada/Alberta Affordable
Housing Agreement, lodge renovations, and other increases.
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Net
Financial and Capital Assets
-
Net Assets – Net assets
are forecast at $31.8 billion at March 31, 2006. This includes
capital assets of $11.7 billion.
-
Capital Account – The Capital
Account is forecast at $4.1 billion, an increase of $3.4 billion
from March 31, 2005. These assets will be used to pay for capital
commitments made for future years.
-
Accumulated Debt/Debt Retirement Account
– Sufficient assets are locked-in the Debt Retirement
Account to repay the remaining accumulated debt as it matures.
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Heritage Fund – The book
value of the Heritage Fund (value of external assets) is forecast
at $12.3 billion, an increase of almost $1.1 billion from March
31, 2005. The increase includes allocations of $750 million
for the Advanced Education endowment and $295 million for inflation
proofing.
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Endowments – Other allocations
to endowments include $250 million for the Scholarship Fund,
$200 million for Medical Research Endowment Fund and $100 million
for the Science and Engineering Research Endowment Fund.
Balance
Sheet
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Capital
Account
Assets,
Liabilities and Net Assets
Net
Financing Requirements
Fiscal
Year Assumptions
Capital
Investment and Amortizationa
Capital
Grants to Local Authorities and Other Infrastructure Supporta
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Actual Results
For
the first six 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.
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Consolidated
Fiscal Summarya
Expense
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