Alberta is in an enviable position. A strong economy. Debt eliminated. And the fiscal flexibility to strengthen current advantages and help build new opportunities.

Alberta also faces challenges. Highly unpredictable resource revenue. Pressures from a growing economy and population. Rising expectations concerning what is affordable and sustainable.

Budget 2006 is focused on strengthening today and securing tomorrow. It balances current and longer-term requirements within a positive but uncertain revenue outlook. The budget addresses infrastructure requirements, improves the quality of services provided to Albertans, lowers taxes and increases savings.

This is being done while maintaining the commitment to a fiscally sound and sustainable outlook. Budgets will be balanced. Tax and spending plans will be affordable not only today, but also over the longer term.

BUDGET PRIORITIES

Budget 2006 is based on 2006-07 oil prices averaging US$50.00 a barrel and natural gas prices averaging Cdn$7.50 per gigajoule (GJ). The economy is expected to grow by 4.8 per cent in 2006 and by about 3.5 per cent in the following two years.

This strength will allow the government to move more aggressively than previously planned in areas important to Albertans:

• Infrastructure Requirements – $13.3 billion will be provided over the next three years to address Alberta’s infrastructure requirements, a 45 per cent increase from the Capital Plan in Budget 2005.
• Program Initiatives – Additional funding will be provided to address initiatives critical to Albertans’ immediate and longer-term needs, with a strong focus on advanced education, health and the future economy.
• Taxes – Taxes will be reduced for individuals and businesses.
• Savings – Over the next three years, a total of $2.7 billion will be provided to increase the assets of the Heritage Fund and the Medical Research Endowment Fund and to establish the Alberta Cancer Prevention Legacy Fund.

FISCAL SUMMARY

Budget 2006 is Alberta’s thirteenth consecutive balanced budget. The budget will be balanced in each of the next three years. The Fiscal Plan is based on a realistic assessment of the outlook for energy prices. It also provides some protection against an unexpected decline in energy revenue.

The budget assumes oil prices at US$50.00 per barrel in 2006-07, declining to US$42.50 by 2008-09. Natural gas prices are forecast at Cdn$7.50 per GJ in 2006-07, declining to Cdn$6.25 by 2008-09.

A surplus of $4.1 billion is estimated for 2006-07. This surplus has been allocated to:

• Savings – $1.9 billion to increase the size of the Heritage Fund, the Medical Research Endowment Fund, the Scholarship Fund, and to establish the new Alberta Cancer Prevention Legacy Fund.
• Capital Investment – $813 million is required to pay for capital investment in government-owned projects.
• Contingency Allowance – $300 million has been set aside and can be used to respond to unforeseen issues that arise during the year.
• Sustainability Fund – $325 million will be added to the Sustainability Fund. This will bring the Fund to $4.4 billion, $1.9 billion higher than the $2.5 billion minimum target level. This provides some additional protection against a sudden decline in energy prices. These funds may become available for other uses, over the three years, as a clearer picture of energy prices emerges.
• Other Requirements – $282 million will be retained by funds and agencies, primarily Alberta Treasury Branches. There is also a negative cash adjustment of $464 million, primarily related to the difference between the accrual of energy royalites and when cash is received.

In 2007-08 and 2008-09, smaller surpluses are forecast as a result of assumed lower energy prices. The Heritage Fund will continue to be inflation-proofed every year as required by legislation and in 2007-08 a further $150 million will be added to the Medical Research Endowment Fund.

FISCAL FRAMEWORK

A legislated fiscal framework has been established to help ensure fiscal responsibility and accountability to Albertans. The framework addresses two fundamental issues:

• Budgets need to be affordable and sustainable both over the short and long term. For this reason, three-year fiscal plans are required, deficits are outlawed, and borrowing for operating purposes is forbidden.
• Resource revenue will continue to be highly variable and unpredictable. For this reason, a legislated limit on the amount of resource revenue that can be used for budget purposes has been set. The Sustainability Fund has also been established to protect operating and capital spending plans from revenue volatility.

The major elements of the fiscal framework will remain unchanged in 2006-07. However, the Fiscal Responsibility Act will be amended to increase the limit on the use of non-renewable resource revenue for budget purposes. It will be raised from $4.75 billion to $5.3 billion. As currently allowed under the Act, an average of over $2 billion a year in nonrenewable resource revenue will also be allocated to the Capital Account to fund capital projects in each of the next three years.

The government will review its fiscal framework in 2006-07, to ensure it still meets the longer-term requirements of Albertans.

STRENGTHENING ALBERTA'S FINANCIAL POSITION

Since the early 1990s, the government has taken concrete steps to strengthen Alberta’s financial position. This has included eliminating deficits, repaying debt and setting aside assets for the future use of Albertans. These steps have met with unparalleled success.

The net financial position of the Province has improved by about $38 billion from 1994-95 – the year the Province’s deficit was eliminated – to 2006-07. This has given Alberta a level of financial strength unmatched in the rest of Canada and a strong foundation for Alberta’s second century.

Alberta’s success has been based on making hard decisions when needed and on the foresight to use energy revenue for both shorter-term improvements and building longer-term advantages.

USE OF NON-RENEWABLE RESOURCE REVENUE

The improvement in Alberta’s financial situation is due to a number of factors, but primarily reflects the limitations placed on the use of surpluses and non-renewable resource revenue, and controls on spending. While it is not possible to track individually every dollar and determine whether it was used to support programs, pay back debt, or increase savings, it is clear that resource revenue made a major contribution in improving the Province’s net worth.

From 1994-95 to 2006-07, the government will have received $88 billion in non-renewable resource revenue. Over this time period, the net financial assets of the Province increased by about $38 billion because of debt elimination and increased savings. In other words, the equivalent of about 40 per cent of non-renewable resource revenue received has been directed to reducing debt and increasing savings.

Debt Repayment. From 1994-95 to 2004-05, the equivalent of $22.7 billion of resource revenue was used to eliminate debt incurred over the previous decade, saving $1.5 billion in annual debt servicing costs.

Savings and Endowments. The equivalent of $15 billion of resource revenue has been allocated to increasing financial assets since 1994-95:

• Heritage Fund – $2.6 billion over the two years 2005-06 and 2006-07, and $431 million for inflation-proofing in the late 1990s.
• Endowments – $2.5 billion provided to existing and new endowments:
  • Advanced education (within the Heritage Fund) – $750 million,
  • Science and Engineering Research Endowment Fund – $600 million,
  • Alberta Cancer Prevention Legacy Fund – $500 million,
  • Medical Research Endowment Fund – $350 million (additional $150 million committed in 2007-08), and
  • Scholarship Fund – $270 million.
• Sustainability Fund – $4.4 billion in assets at March 31, 2007. The Fund protects against the cost of emergencies/disasters and unexpected revenue declines and pays for natural gas rebates. Funds may be reallocated for other uses as a clearer picture of energy prices emerges.
• Capital Account – $4.2 billion at March 31, 2007. The Capital Account is used to fund capital spending in current and future years. It is expected to be drawn down to $2.3 billion by March 31, 2009.
• Other net improvements – There are improvements in other balance sheet items, including Alberta Treasury Branches’ financial position.

Rebates. About $4.5 billion, or 5 per cent, of non-renewable resource revenue also has been returned to Albertans through natural gas rebates to help offset high winter heating costs, and direct tax rebates, including:

• Natural gas rebates – $2.5 billion over the period 2000 to 2007.
• Alberta 2005 Resource Rebate – $1.3 billion.
• 2001-02 Alberta Energy Tax Refunds – $0.7 billion.

INVESTMENTS IN ALBERTA'S FUTURE

• Health continues to account for the largest share of total program spending at 37 per cent. Funding for the public health system is being increased and improvements are being made to continuing care.
• Education, including basic and advanced education, will account for 27 per cent of total program spending. The accessibility, quality and affordability of post-secondary education are being improved and continuing support is being provided to meet class size requirements.
• Alberta’s Economy and Environment – Initiatives are being taken to support rural development, encourage research and innovation and protect the environment.
• Other Initiatives – Services for children are being strengthened. Benefits have been increased for AISH recipients. Albertans will continue to receive natural gas rebates. Additional funding is being provided for policing and access to the justice system.

In 2006-07, base operating spending is increasing by 8.3 per cent, or $1.9 billion, from the 2005-06 forecast. This excludes funding for emergencies/disasters, natural gas rebates and capital-related expenses in both years. The increase in program expense is only 4.1 per cent due to lower budgeted spending on natural gas rebates and emergencies/disasters.

INFRASTRUCTURE - 2006-09 CAPITAL PLAN

Infrastructure requirements will be addressed at a level unmatched in the rest of the country. The 2006-09 Capital Plan will directly support $13.3 billion in capital projects. This is a 45 per cent, or $4.1 billion, increase from the 2005-08 Capital Plan published in Budget 2005.

Last year, a major increase was provided for municipal infrastructure, including a five-year, $3 billion Municipal Infrastructure Program. In Budget 2006, major increases have been provided for:

• Health, schools and post-secondary facilities. The three-year commitment will increase from $2.8 billion to $4.9 billion.
• Provincial Highway Network. The three-year commitment will increase from $2 billion to $3.6 billion. This will provide for continued investment in strategic economic corridors and ongoing construction and rehabilitation throughout Alberta.

ALBERTA TAX ADVANTAGE

Albertans and Alberta businesses pay, by far, the lowest overall taxes in Canada. If Alberta had the same tax system as any other province, Albertans and Alberta businesses would pay at least $7.2 billion more in taxes each year, the equivalent of about $2,200 per capita.

In 2005, the government undertook an internal review of the Province’s tax system. The review confirmed that Alberta has a fair and competitive tax system.

The tax review identified priorities for future tax cuts. On the personal side, the focus should be on providing tax relief that is directed primarily towards lower and middle-income Albertans. On the business side, the top priority should be to reduce the general corporate income tax rate. Budget 2006 will act on these priorities.

PERSONAL TAX REDUCTIONS AND HEALTH CARE INSURANCE PREMIUMS

From 1999 to 2001, the government phased in over $1.5 billion in personal income tax cuts, including implementing a single rate tax and the highest basic and spousal amounts in Canada.

In 2001, indexing of credit amounts started, which has protected taxpayers from the effects of inflation and kept over 140,000 lower-income Albertans off the tax rolls.

In 2004, seniors were exempted from paying health care insurance premiums and, starting in 2005, senior homeowners were protected from increases to school property taxes.

Also in 2005, the Alberta Family Employment Tax Credit was enhanced, providing more benefits to lower-income working families.

In Budget 2006, the following tax and premium changes are being made:

• Basic, spousal and eligible dependant tax credits – Amounts are being increased from $14,523 to $14,899 for the 2006 tax year as a result of indexation plus an extra $100 adjustment. These changes, and the indexation of other credit amounts, are expected to save Albertans about $77 million in the 2006 tax year. The indexation of the Alberta Family Employment Tax Credit will also begin in July 2006. With these enhancements, a typical working family with two children can effectively earn up to $37,000 before paying provincial income taxes.
• Enhanced subsidies for health care insurance premiums – The income thresholds at which low-income families and individuals begin to pay partial premiums are being raised by $5,000, effective April 1, 2006. For example, a family with children will pay no health care insurance premiums if their taxable income is less than $32,210 and will pay only partial premiums until their taxable income exceeds $39,250. The increase to the thresholds will benefit approximately 140,000 people and save them about $30 million in 2006-07.

BUSINESS TAX REDUCTIONS

The 2005 tax review confirmed that Alberta’s business tax system is highly competitive within Canada, with low rates for large and small businesses. However, the review also noted that there are emerging competitive pressures from jurisdictions outside of Canada.

Based on the tax review findings, the general corporate income tax rate is being reduced from 11.5 per cent to 10 per cent effective April 1, 2006. This is estimated to save Alberta businesses $265 million in 2006-07.

The lower corporate income tax rate positions Alberta to meet worldwide competition and sets a strong foundation for tomorrow’s economic growth and job creation.

SCHOOL PROPERTY TAX MILL RATE REDUCTIONS

In every year since 1994, mill rates have been either reduced or frozen. In 2006, school property tax mill rates are being reduced by over 7 per cent. Even though rates are being reduced, revenue will increase 1.7 per cent as a result of the many new homes and businesses that have been built over the last year.

School property tax assistance will be provided to eligible senior homeowners. This assistance has protected senior homeowners from any increases in school property taxes since 2004, or from when they moved into their home or became a senior, if subsequent to January 1, 2005.

ADVANCED EDUCATION

Strengthening the advanced education system is one of the government’s top priorities. Over the next three years, the Ministry of Advanced Education will provide:

• An additional $474 million, or nearly a 29 per cent increase, for postsecondary education. This includes maintaining tuition fees at 2004-05 levels in 2006-07.
• $1.1 billion in capital support for post-secondary facilities.

In 2006-07, program expense reaches nearly $2.2 billion, a 19.1 per cent increase from 2005-06. This includes $1.9 billion in operating support for the post-secondary system, an increase of $265 million or 16 per cent. In addition, $273 million in capital grants is provided from the Ministry to post-secondary institutions in 2006-07.

QUALITY AND ACCESSIBILITY - POST-SECONDARY INSTITUTIONS

Support to Post-Secondary Institutions. In 2006-07, support is increasing by $166 million, or 11.6 per cent, to almost $1.6 billion. By 2008-09, funding will have increased by $380 million, or 26.6 per cent, to over $1.8 billion. Major increases in 2006-07 include:

• $61 million for base operating grants. Grants will increase by 6 per cent per year for the next three years, providing for inflationary pressures including staff salary settlements and higher facility operating costs.
• $61 million for the Enrolment Planning Envelope, an increase of 50 per cent, to address enrolment growth, expand apprenticeship training capacity and encourage increased participation in learning opportunities.
• $44 million to pay tuition increases at public post-secondary institutions in September. A total of $87 million is being provided in 2006-07 to offset the tuition fee increases in 2005-06 and 2006-07.

Increasing Access. In total, 15,000 new learning opportunities will have been provided by 2007-08, and 20,000 by 2008-09. That includes almost 12,000 full-load equivalent student spaces added by 2008-09 in universities, colleges, technical institutes and apprenticeship programs. New opportunities will also be extended beyond the traditional classroom to include expanded access closer to the learner.

Access to the Future Fund. $750 million was allocated to an advanced education endowment in the Heritage Fund during 2005-06. In 2006-07, as a result of income earned on the endowment, $45 million is available to the Access to the Future Fund. This includes $11 million earned in 2005-06.

The Access to the Future Fund will be used to enhance the capacity of the post-secondary system through matching grants, and to support initiatives to broaden access, improve quality, enhance learning outcomes, attract and retain the best minds and talents, and expand innovation capacity.

AFFORDABILITY - STUDENT ASSISTANCE

Tuition. This September, the government will pay tuition increases at public post-secondary institutions, as was done in September 2005. A review of the affordability of advanced education is taking place. Based on this review, a new tuition policy will be announced by the fall of 2006.

Student Assistance. Funding for scholarships, bursaries and grants to students increases by $14.9 million, or 21.5 per cent, to $84 million in 2006-07. About 32,000 students will receive scholarships.

In 2006-07, $20 million is being added to the Scholarship Fund to support the new Alberta Centennial Scholarship Program. The program will provide 325 annual scholarships worth $2,005 each to 25 post-secondary students in every province and territory, including Alberta.

Alberta expects to disburse $97 million in student loans in 2006-07, up $13 million or 15 per cent from 2005-06. To recognize increased student living costs, yearly loan limits are increasing to $12,440 from $12,140. The Alberta Student Loan Relief Benefit and the Loan Relief Completion Payment will reduce the debt of students in their first and final years of study. Alberta continues to have the most generous student debt relief programs in the country.

In 2006-07, eligibility for the $100 matching grants to Registered Education Savings Plans under the Alberta Centennial Education Savings Plan is being expanded to include all children aged 8, 11 and 14.

CAPITAL SUPPORT FOR POST-SECONDARY FACILITIES

Over $1.1 billion in funding for post-secondary capital projects will be supported over the next three years. This is an increase of about $650 million over the 2005-08 plan published in Budget 2005.

Projects include a new Centennial Centre for Interdisciplinary Science at the University of Alberta, the Campus Calgary Digital Library at the University of Calgary, and the second phase of redevelopment at Bow Valley College.

EDUCATION

Excellence in the kindergarten to grade 12 education system continues to be a high priority for Albertans. The Ministry of Education’s initiatives over the next three years include:

• An additional $575 million for operating support to school boards and other educational support.
• $833 million for school capital projects.

In the 2006-07 fiscal year, program spending on the basic education system, including grants for school capital projects, is over $5.1 billion, a 6.8 per cent increase from 2005-06. This includes $4.8 billion in operating spending, an increase of 5.1 per cent, or $231 million. In addition, $339 million is provided for school capital projects in 2006-07.

SUPPORT TO SCHOOL BOARDS

In 2006-07, operating and property tax support to public and separate school boards, including funding for provincial initiatives such as the Class Size Initiative, increases by 5.2 per cent, or $194 million. This will bring support to school boards to more than $3.9 billion. By 2008-09, this support will be more than $4.2 billion, a three-year increase of $517 million, or 13.8 per cent.

This additional funding will give school boards increased capacity to manage the education initiatives currently underway while providing flexibility for school boards to address local education needs. General enrolment across the province is expected to decrease by about 3,000 students, or 0.5 per cent this year.

Budget 2006 continues the government’s commitment to the Class Size Initiative. In July 2004, the government announced that school boards would receive, in addition to their base grants, funding over a three-year period to hire 2,265 teachers in order to reduce class sizes. For the 2004-05 school year, 1,250 new classroom teachers were hired under this initiative. An additional 435 teachers were hired for the 2005-06 school year.

As a result, the majority of school boards already meet or exceed the Commission on Learning’s guidelines for grades 4 to 12 average class sizes. For the 2006-07 fiscal year, support for the Class Size Initiative is increasing by $16.6 million, or 15.1 per cent, to $126.3 million, allowing school boards to retain the 1,685 teachers hired in the last two years and hire additional teachers to specifically address those areas experiencing the greatest difficulty in class size reduction.

This budget also provides funding for initiatives such as:

• Additional innovative technology in the classroom.
• Increased transportation costs, including the continuation of the Transportation Fuel subsidy.
• Additional support for the Student Health Initiative.
• Increased support for students with severe special needs.
• Increased support for students requiring English as a Second Language programming.

SCHOOL FACILITIES OPERATIONS AND MAINTENANCE

In 2006-07, plant operations and maintenance support to school boards is increasing by $19 million, or 5.1 per cent, to $395 million. This fulfills the government’s commitment to increase plant operations and maintenance funding by $43 million this school year.

OTHER PROGRAMS AND SERVICES

• Teachers’ Pension Costs – 6.3 per cent increase in teachers’ pension costs, reflecting the hiring of additional teachers, increases in the contribution rate and negotiated salary increases.
• Private Schools – 5 per cent increase in funding for accredited private schools for grant rate increases and to accommodate the number of special needs students served, particularly by private early childhood services operators.
• Technology – continued support for e-learning opportunities including high-speed networking, LearnAlberta.ca, and provincial Microsoft licensing for school boards.
• High School Completion – A series of roundtables will be held with youth from across the province to discuss high school completion. A symposium, which will include teens, parents, business leaders and educators, will help develop a provincial strategy to increase high school completion rates.

CAPITAL SUPPORT FOR SCHOOLS

Capital support for schools will total $833 million over the next three years, an increase of $189 million from the 2005-08 Capital Plan. In 2006-07, $339 million is being provided including $81 million for Infrastructure Maintenance and Renewal projects, and $258 million to fulfill the government’s commitment for previously announced school projects.

HEALTH AND WELLNESS

On February 28, 2006, a Health Policy Framework was released that outlined values and policy directions for Alberta’s health system. The framework envisions a comprehensive public health system that provides quality health services to all Albertans, and creates greater flexibility and choice.

Since 1995-96, health spending has grown by an average of about 10 per cent a year and accounts for 37 per cent of the government’s total budget. The Alberta government’s per capita health spending is one of the highest in the country.

Health Authority Operating Grants. Nearly two-thirds of Health and Wellness’ operating budget is provided to health authorities for provision of services, ranging from home care to diagnostic testing to surgeries and transplants. In 2006-07, operating grants to health authorities increase by $338 million, or 6 per cent, to nearly $6 billion. Further increases of 6 per cent are planned in 2007-08 and 2008-09.

Physician Services. $1.88 billion is being provided in 2006-07 including:

• $75 million for special arrangements with academic physicians so they can focus more time on research, education and delivering innovative specialty care to Albertans.
• $70 million for primary care initiatives.
• $21 million for the Physician Office System Program to support the expansion of the Electronic Health Record to physician offices.

Continuing Care. $42 million is being provided in 2006-07 to improve continuing care through changes such as increasing the number of hours of nursing and personal care in long-term care facilities, permitting increases in therapy, implementing new health care standards and improving case coordination. This is in addition to the $25 million increase provided in 2005-06. The number of hours of care will increase to 3.6 per resident day, up from 3.1 hours in 2004-05.

Drug Benefits. Non-group health benefits rise to $690 million in 2006-07, an increase of $91 million, or 15 per cent. This is largely due to increases in the cost of drug benefits for seniors.

Alberta Alcohol and Drug Abuse Commission. Budget is increasing by $19 million, or 25 per cent, to $95 million in 2006-07. $14 million of this increase is being used to implement services to help children abusing drugs.

HEALTH CAPITAL

$2.9 billion will be provided over the next three years, an increase of $1.2 billion, or 74 per cent, over the 2005-08 Capital Plan. This includes:

• $2.5 billion for health facilities projects including:
  • South Calgary Hospital, Foothills Medical Centre, Peter Lougheed Centre, Alberta Bone and Joint Institute, and Rockyview General Hospital in Calgary.
  • Health Sciences Ambulatory Learning Centre, the Royal Alexandra Hospital and the Mazankowski Alberta Heart Institute in Edmonton.
  • Health facilities in Red Deer, Lethbridge, Edson, Barrhead, Viking, High Prairie, Sherwood Park and Fort Saskatchewan.
• Information systems and vaccines – $309 million for the collection and distribution of health information, including the Electronic Health Record and the Diagnostic Imaging Strategy, and $95 million to purchase vaccines for immunization programs.

SENIORS AND COMMUNITY SUPPORTS

The Ministry provides assistance to seniors and persons with disabilities, and various social housing programs. In 2006-07, operating spending is $1.7 billion, an increase of 9 per cent or $141 million.

Total program spending increases by only 2.8 per cent in 2006-07 as a result of lower capital grants for affordable housing and supportive living.

Alberta Seniors Benefit. Program funding is increasing by $21 million, or over 8 per cent, to $274 million as part of the increased funding for continuing care. Residents of long-term care and designated assisted living facilities are receiving increased funding to assist with their accommodation costs. The maximum annual benefit rose to $9,660, effective January 1, 2006.

Assured Income for the Severely Handicapped (AISH). In 2006-07, funding reaches $574 million, an increase of $86 million, or nearly 18 per cent (excluding the $12 million legal settlement in 2005-06). The increase provides for higher caseload volumes and for:

• A $50 increase in the maximum monthly living allowance to $1,000, effective April 1, 2006.
• Increased benefits for AISH recipients living in long-term care or designated assisted living spaces as part of the continuing care reforms. The maximum annual benefit was increased by nearly 20 per cent to $20,810 effective January 1, 2006.
• Full-year costs of changes made in October 2005 to enhance benefits such as special transportation, and to increase employment income exemptions so recipients can benefit more from their earned income.

Seniors Lodge Assistance. Assistance has been increased by $4.7 million during 2005-06 and a further $4.2 million in 2006-07.

Persons with Developmental Disabilities (PDD). In 2006-07 the budget increases by $13 million, or 2.6 per cent, to $509 million. This is on top of the $10 million in new ongoing annual funding announced in February 2006 for salary increases to some 12,000 frontline staff.

Social Housing Capital. $69 million is provided in 2006-07, including:

• $24 million for the Rural Affordable Supportive Living program which supports the creation of housing in rural Alberta for seniors, people with high health needs and lower-income Albertans. This is in addition to the $76 million provided in 2005-06. Over the two years, this will support the construction of about 1,500 supportive living units in rural Alberta.
• $44 million is provided to support the development of 350 affordable housing units. This is the final year of the Canada/Alberta Affordable Housing Agreement, which will have provided nearly $200 million since 2002 to expand the stock of affordable housing units in Alberta.

CHILDREN'S SERVICES

In 2006-07, program expense is $918 million, an increase of $99 million, or 12.1 per cent. This funding increase will help strengthen the continuum of services designed to produce better results for children, youth and families in urban, rural and Aboriginal communities.

In late February 2006, the new federal Conservative government informed Alberta that funding for the Early Learning and Child Care initiative would be cancelled after the 2006-07 fiscal year. This decision came too late in Alberta’s budget process to determine the possible implications for Children’s Services 2007-09 spending plans. As a result, the revenue and expense associated with this initiative are still contained in 2007-08 and 2008-09 plans. Alberta will actively participate in negotiations with the new federal government regarding future federal funding in this area.

In 2006-07, increases in funding allow for:

• Child Care. $147 million for child care programs, an increase of $49 million or nearly 50 per cent from 2005-06. Alberta’s five-point plan, released in October 2005, indicated the additional federal funding would be used to increase child care subsidies and to improve the quality of child care choices.
• Child Intervention Services. Funding is increasing by $22 million, or 5.4 per cent in 2006-07. The protective services safety net is being strengthened through Bill 2, the Drug Endangered Children Act. The Act clarifies that children exposed to drug manufacturing and trafficking are victims of abuse and require intervention. It provides an additional tool to rescue, protect, shelter and support drug-endangered children.
• Family Support for Children with Disabilities. An additional $8.8 million, or 10.7 per cent, is being provided to expand services, particularly for those in rural and isolated areas of the province.
• Other Services. Funding is increasing by an additional $16 million or 9.4 per cent. This allows additional resources to be provided for the Prevention of Family Violence and Bullying, and to help youth in government care, including increased bursaries to pursue post-secondary education and expanded transitional supports.

SAFE COMMUNITIES

Organized Crime. Funding to combat organized crime is increasing to $18 million in 2006-07, a 23 per cent increase. This increase will establish a twenty-member surveillance team that will work closely with the RCMP and municipal police services in providing strategic support to crack down on organized crime. The fight against the use of crystal methamphetamine will continue through the Integrated Response to Organized Crime Unit, other integrated units targeting drugs and gangs, and participation in the newly established Crystal Meth Task Force.

Municipal Policing. Policing assistance to municipalities is being increased by 4.8 per cent to $48 million in 2006-07 to allow funding to keep pace with population growth in the province, and to deal with unique policing situations faced by specific municipalities.

Enhanced Prosecution Service. Funding for Legal Services provided by Justice is increasing by $7.9 million, or 9.3 per cent in 2006-07. $6.3 million of this increase is in the Criminal Justice Division, which includes funding to hire an additional eighteen Crown prosecutors and nine prosecutorial staff. As well, up to ten specialized prosecutorial staff focusing on family violence issues will be added.

Access to Justice. Funding for Court Services increases by $10.2 million, or 7.6 per cent in 2006-07. The additional funding will be used to appoint additional judges and to hire frontline staff in courthouses and pursue information technology to improve services to judiciary and public.

Alberta Relationship and Threat Assessment and Management Initiative. A multi-disciplinary unit involving the RCMP, municipal agencies, Health and Wellness, Children’s Services, Justice, and Solicitor General and Public Security is being established to reduce and manage high-risk family violence and stalking cases.

INFRASTRUCTURE AND TRANSPORTATION

The Ministry of Infrastructure and Transportation provides funding for the provincial highway network, municipal infrastructure, natural gas rebates and government facility operations. Initiatives over the next three years include:

• $3.2 billion in capital support for municipal infrastructure, including municipal water and wastewater systems.
• $3.6 billion in capital support for the provincial highway network.
• Continued natural gas rebates and initiatives to improve traffic safety.

In 2006-07, program spending, including capital grants to municipalities, is budgeted at almost $2.6 billion. This is a decrease of about $370 million from 2005-06, almost entirely as a result of the expected lower costs of the Natural Gas Rebate program. In 2006-07, Infrastructure and Transportation is also providing $1.3 billion for capital investment in provincial highways and government facilities. This is an increase of $410 million, or 47 per cent, from the 2005-06 forecast.

CAPITAL SUPPORT FOR MUNICIPAL INFRASTRUCTURE

Over the three years, Alberta municipalities will receive $3.2 billion in capital support through Infrastructure and Transportation. This includes:

• Alberta Municipal Infrastructure program – $1.8 billion for municipal roads, bridges, public transit, water and wastewater, emergency services and infrastructure management systems.
• Municipal Transportation Grants – $995 million for rural and urban communities for transportation capital projects based on 5 cents per litre of fuel delivered in Edmonton and Calgary, $60 per capita for other urban municipalities, and on factors such as kilometers of open road and terrain for rural grant programs.
• Water and Wastewater – $126 million for municipal water supply and treatment and wastewater treatment and disposal.
• Other Municipal Capital Support – $320 million in support for the federal New Deal for Cities and Communities, Alberta’s share of the Canada/Alberta Municipal Rural Infrastructure Fund and other initiatives.

PROVINCIAL HIGHWAY NETWORK

Over the next three years, capital support for the provincial highway network will total $3.6 billion. This is an increase of $1.7 billion or 83 per cent from the 2005-08 Capital Plan. This includes:

• $1.5 billion for the Edmonton and Calgary ring roads.
• $2.1 billion for other highway construction projects, including the commencement of the twinning of Highway 63 between Edmonton and Fort McMurray, continuing upgrades to other sections of Highways 63 and 881 in and around the Fort McMurray/Wood Buffalo area, twinning sections of the North-South Trade corridor, and other highway rehabilitation throughout the province.

OTHER CAPITAL PROJECTS

Investments of $672 million in other government-owned capital will also take place over the next three years, for the Royal Alberta Museum, the Calgary Courts Centre, dams, canals and erosion-control infrastructure, and other government facilities.

NATURAL GAS REBATE PROGRAM

The Natural Gas Rebate program was developed to provide some protection to Albertans from high winter natural gas prices. The program has been extended until March 31, 2009 and expanded to include rebates for six months, from October to March. It is expected that approximately $926 million in rebates will be provided over the next three years.

TRAFFIC SAFETY PLAN

A Traffic Safety Plan is being developed to coordinate new strategies, changes to legislation and increased enforcement. Issues such as driver education and licencing, enforcement, community involvement and road engineering improvements will be addressed.

ECONOMIC AND ENVIRONMENTAL INITIATIVES

RURAL DEVELOPMENT

Rural Development Initiative. In 2006-07, $100 million is being provided for an initiative to support community-based projects to expand and diversify the rural economy, improve services in local communities and enhance the quality of life for rural families.

The program parameters are being finalized and will reflect input received from rural Albertans. This initiative is in addition to other measures such as increased funding for rural health facilities, affordable housing programs, Agricultural Service Boards, the Water for Life strategy, irrigation systems and municipal policing.

Bovine Spongiform Encephalopathy (BSE). The BSE crisis has severely affected rural communities. Nonetheless, farmers, ranchers and those whose livelihood depends on a healthy rural economy have persevered, in part due to support from other Albertans through the government’s continuing six-part BSE recovery strategy. Budget 2006 provides an additional $20 million to respond, if necessary, to BSE-related changes in feed regulations and specified risk material disposal.

Farm Income Stabilization. Programs are being reviewed to improve their effectiveness. Pilot projects have been introduced to deal with the longerterm declining economics of agricultural production due to sagging agricultural commodity prices, increasing input costs and crises like drought and BSE. As well, the government recently extended enhancements to the Revenue Insurance Coverage and Spring Price Endorsement programs to cover the 2006 crop year. Alberta’s grain and oilseeds producers also will see a 20 per cent drop in their share of production insurance premiums for 2006.

RESEARCH AND INNOVATION

Research Endowment Funds. Alberta has two major research endowment funds with total assets of $2 billion. Over the next three years, these funds will support approximately $285 million in medical, and science and engineering research in Alberta. In addition, the new $500 million Alberta Cancer Prevention Legacy Fund will support cancer research.

National Institute of Nanotechnology (NINT). Over the past five years, $60 million has been invested by Alberta in constructing and equipping one of the world's most technologically advanced facilities for nanotechnology research, with $47.4 million invested by the provincial government and $12.6 million from the University of Alberta. The total project cost is $120 million, funded in partnership with the federal government and the University of Alberta. NINT will explore nanotechnology applications in health, computing science, energy, biotechnology, education, manufacturing and engineering.

Energy Research. $63 million will be provided for energy research over the next three years, mostly through the Alberta Energy Research Institute. The Institute’s six priorities are: clean coal development, bitumen upgrading, enhanced recovery of oil and gas, alternate and renewable energy sources, carbon dioxide, and water management.

Clean Coal Technologies. Alberta has 33.6 billion tonnes of established reserves of coal, and potentially 620 billion tonnes might be available. Clean coal technologies, such as coal gasification, make it possible for coal to be used in an environmentally efficient manner while capturing associated by-products which can enhance value-added opportunities. Ten per cent of Alberta Energy Research Institute’s 2006-09 budget is supporting, in partnership with industry, the federal government and universities, ten clean coal technologies research projects valued at $18.5 million.

Innovative Energy Technologies Program. A five-year, $200 million royalty reduction program, including $15 million for carbon dioxide sequestration, was established in 2005-06. The program encourages development of new energy technologies to increase recoveries from existing and in-situ oil sands reserves, development of new reserves, finding solutions to the gas over bitumen issue, and devising cost reductions that extend oil and gas pools’ economic lives. To date, $68 million in royalty adjustment commitments have been made, of which $14 million relate to carbon dioxide sequestration.

Life Sciences Research. $51 million will be provided over the next three years for research on bioproducts, health and nutrition, water, genomics and other platform technologies, and sustainable resource management.

Alberta SuperNet. With the recent completion of SuperNet, Albertans across the province have the opportunity to connect to a high-speed internet network. Currently 25 internet service providers are using SuperNet to provide service in over 97 communities. More communities are expected to connect in the near future.

AVAC Ltd. In 2006-07, AVAC will expand operations to provide managerial and financial support to start-up and early stage ventures in information and communications technology, life sciences and other industrial technology sectors. $30 million was provided for this initiative in February 2006.

THE ENVIRONMENT

Water for Life: Alberta’s Strategy for Sustainability

In 2005-06, $105 million was provided for implementing the Water for Life strategy. This strategy is focused on safe, secure drinking water, healthy aquatic ecosystems and sustainable supplies of water. Over the three years, $172 million in operating and capital support will be provided, including:

• $126 million in capital grants to support municipal water supply and treatment, and wastewater treatment and disposal.
• $33 million to improve understanding of groundwater in the province, accelerate the completion of flood risk mapping to reduce risk and liabilities from flooding, advance drinking water programs for smaller communities, and for water monitoring equipment.
• $13 million to expand testing capacity for drinking water, augment emergency response support to public and private water systems, enhance waterborne health protection systems, upgrade drinking water systems and continue monitoring water quality in provincial parks.

In addition to the Water for Life funding, $144 million over three years is committed for irrigation rehabilitation grants, government dams, canals and erosion-control infrastructure and other initiatives.

Climate Change. In 2006-07, $12 million is provided for Climate Change activities. This includes $8 million in research funding through the Alberta Energy Research Institute. Other initiatives include energy efficiency and conservation programs. In 2006-07, amendments to the Climate Change and Emissions Management Act will be introduced providing regulatory authority to set greenhouse gas emissions limits for industrial facilities.

Forest Management. Over three years, $70 million will be provided to continue to upgrade aircraft and air tanker bases used for fighting wildfires, and $8 million will be provided to continue to address the mountain pine beetle infestation.

Land Use Framework Initiative. $15 million will be provided over three years for consulting with Albertans on land use in developing a decisionmaking framework. Funding also allows for improving land use resource information to support decision-making for environmental sustainable resource management, and for enhancing the existing land disposition approval process.

Alberta Energy and Utilities Board. There is a $14 million increase in their 2006-07 budget. This increase will be used to help improve public and environmental safety, and adapt regulatory activities to new energy resources being developed (such as coalbed methane, shale gas, low-productivity oil and gas).

OTHER INITIATIVES

Tourism. In 2006-07, tourism funding is increasing by over $6 million, or 14.6 per cent, to $48 million, for expanded national and international marketing and development of new tourism opportunities.

Alberta Film Development Program. Funding for the program is increasing by 10 per cent to almost $15 million in 2006-07. The program is targeted to reach $18 million by 2008-09, a $4.5 million, or 33 per cent, increase over the next three years.

Community and Cultural Foundations. A total of $7 million is being added to the budgets of provincial foundations supporting programs in the arts, sports and recreation, human rights and multiculturalism, volunteerism and historical resources sectors.

Employment and Income Support. Increased funding is being provided for workplace health and safety initiatives, and immigration services, including enhanced English as a Second Language training and foreign credential recognition.

Strong employment growth has allowed funding to be reallocated within Alberta Works:

• to skills and apprenticeship training programs, with an emphasis on occupations facing labour shortages, and
• for a 5% increase in Alberta Works core benefit rates for almost 12,000 clients who are not expected to work.

First Nations. Over the next three years, $21 million will be spent on the First Nations Economic Participation initiative. $10 million is also being provided to accelerate completion of Traditional Use Studies. This should facilitate improved resource management decision-making by avoiding potential land use conflicts with First Nations.

Regulatory Reform. Alberta’s regulatory regime will be reviewed in 2006-07. Opportunities to streamline activities and to remove duplication will be identified.

ECONOMIC AND REVENUE OUTLOOK

In 2005-06, revenue increased by 18 per cent to $34.6 billion. This was the result of record non-renewable resource revenue which increased by nearly 50 per cent. Revenue from other sources (before deducting the Alberta 2005 Resource Rebates) increased by about 10 per cent, reflecting strong corporate and personal income tax revenue and investment income.

Over the next three years, total revenue is expected to decline. Energy prices are assumed to fall back from their current peaks, resulting in a decline in resource revenue. The growth in revenue from other sources is also expected to be lower due to tax reductions and a more moderate rate of return on investment income. As a result, revenue will decline by $2.2 billion, or 6.3 per cent, in 2006-07 and a further 5.9 per cent over the following two years.

The volatility of energy prices makes it difficult to accurately forecast government revenue. While non-energy revenue can be expected, on average, to grow roughly in line with the growth in the economy, energy revenue can change by billions of dollars in a single year. For this reason, legislated limits have been placed on the amount of non-renewable resource revenue that can be used for budget purposes. This provides a more predictable level of revenue on which to base program spending decisions.

The Fiscal Responsibility Act will limit the amount of non-renewable resource revenue that can be used for budget purposes to $5.3 billion in Budget 2006. However, the Act does allow budgeted revenue to be supplemented through transfers from the Capital Account for capital projects and from the Sustainability Fund for natural gas rebates, emergencies/disasters and settlements with First Nations.

Over three years, the Capital Account provides an average of $2.3 billion per year for capital grants. The Sustainability Fund will also provide an average of $309 million a year for natural gas rebates.

In 2005-06, energy prices reached record levels. Oil prices averaged US$60 per barrel and natural gas prices averaged Cdn$8.40 per GJ. These exceptionally high oil and natural gas prices, combined with record land lease sales, resulted in a record $14.4 billion in non-renewable resource revenue in 2005-06.

Non-renewable resource revenue in 2005-06 was nearly double the level it was just two years ago, in 2003-04, and nearly five times higher than it was through most of the 1990s.

Energy Price Forecasts by Other Organizations

The rapid rise in energy prices in recent years was unexpected by most analysts. Today, there is even less certainty over energy prices. Generally, energy analysts surveyed have indicated that they expect oil and natural gas prices to decline from current levels. However, the timing and extent of the expected decline vary considerably.

By 2008-09, the average oil price of energy analysts surveyed is about US$46 while the average natural gas price is the equivalent of just under Cdn$6.00 per GJ.

These prices are similar to the medium-term forecast being used in Budget 2006. However, Budget 2006 does assume the decline in oil prices will occur about a year faster than most industry analysts surveyed.

Reflecting the uncertainty over energy prices, forecasters have a fairly wide range of views. Based on the forecasts reviewed, for 2006-07, there is about a US$24 range in oil prices and Cdn$2.75 range in natural gas prices. This suggests non-renewable resource revenue could be between $10 billion and $16 billion.

Budget 2006 Non-Renewable Resource Revenue Forecast

2006-07 non-renewable resource revenue is estimated at $11.4 billion. This is $3 billion, or 21 per cent, lower than 2005-06. Over the following two years, non-renewable resource revenue is forecast to decline by $1.9 billion and $1.2 billion, reaching $8.2 billion in 2008-09.

Bonuses and sales of Crown leases reached a record level of $3.4 billion in 2005-06, almost $2.2 billion higher than the previous record in 2004-05. The budget assumes bonuses and sales of Crown leases revenue will return to roughly 2004-05 levels for 2006-07 and the following two years.

Royalties from synthetic crude oil and bitumen also reached a record level in 2005-06, at almost $1.2 billion. In 2006-07 and 2007-08, royalties from oil sands are expected to surpass that record by over $500 million, with revenue estimated at $1.7 billion. Strong oil prices will increase royalties from projects in payout and accelerate the timing of project payout for other projects. In 2008-09, royalties are forecast to drop by $350 million, as adjustments within the royalty system to treat all projects on a similar basis are expected to take place.

In 2006-07, total tax revenue is estimated at $11.5 billion. This is $1.1 billion higher than in 2005-06. The increase is due to a one-time $1.3 billion reduction in 2005-06 for the Alberta 2005 Resource Rebate. The rebate is a refundable tax credit and the cost is reported as a reduction to personal income tax revenue.

Excluding the resource rebates, total tax revenue is $185 million, or 1.6 per cent, lower than in 2005-06. The decrease is due primarily to a reduction in the corporate income tax rate and the effect of prior years’ adjustments to personal income tax. In the following two years, tax revenue is forecast to grow by an average of about 3.9 per cent a year.

Personal income tax revenue is forecast at $6 billion, an increase of $102 million, or 1.7 per cent in 2006-07. This excludes the Alberta 2005 Resource Rebates. The relatively low increase is mostly due to prior years’ adjustments related to 2003 and 2004 tax years. These adjustments increased 2005-06 base revenue. Taking these adjustments into account, the 2006-07 base growth rate in personal income tax is forecast to be 7.4 per cent. In the following two years, the growth in personal income tax revenue will average around 7 per cent a year.

School property tax revenue is forecast at $1.3 billion, an increase of about $22 million, or 1.7 per cent, in 2006-07. In the following two years, school property tax revenue is forecast to grow by about 4 per cent a year.

Other tax revenue is expected to be relatively unchanged over the next three years, at about $2 billion. Reductions in freehold mineral rights tax revenue offset most of the increase in revenue from the other tax sources.

Transfers from the Government of Canada represent about 12 per cent of Alberta’s program expense. Federal transfers are estimated at almost $3.4 billon in 2006-07, an increase of $35 million, or 1 per cent from 2005-06.

Most of the increase in ongoing federal transfer programs is offset by the ending of several special health transfers and the absence of federal disaster payments for floods in 2006-07.

Health transfers are estimated at $1.9 billion in 2006-07, a 1.1 per cent increase from 2005-06. The Canada Health Transfer is forecast to increase by 11 per cent, but this is almost entirely offset by the wind up of three other special health transfer programs (Diagnostic/Medical Equipment and the 2003 and 2004 CHST Supplements). In the following two years, total health transfers are forecast to increase by 6.7 per cent and 4 per cent.

Agriculture transfers dropped significantly in 2005-06 due to lower BSE assistance and good crop conditions that lowered requirements for agriculture income stabilization and production insurance payments. Federal agriculture transfers are expected to return to more customary levels of about $300 million a year for the 2006-09 period.

The Canada Social Transfer, which supports post-secondary education and social programs, is forecast to increase by 10.4 per cent, to $678 million in 2006-07 and by an average of 5 per cent in the following two years.

Other federal transfers are forecast to decline in 2006-07 by 19 per cent, primarily due to the reduction in transfers related to flood disasters.

Other transfers also include the Early Learning and Child Care initiative. The federal government informed Alberta, in late February 2006, that this initiative would be cancelled after the 2006-07 fiscal year. This decision came too late in Alberta’s budget process to determine the possible implications for 2007-08 and 2008-09 budget plans. The revenue forecast for 2007-08 and 2008-09 still includes the transfer of $117 million in each year for this initiative as identified under the original agreement.

Investment income is estimated to be $1.8 billion in 2006-07, a decrease of $339 million, or 16.1 per cent, from the 2005-06 forecast. The decline is primarily due to an expected lower rate of return on Heritage Fund and other endowment fund investments. Investment income is forecast to remain relatively flat over the following two years.

Heritage Fund and other endowment funds realized investment income is expected to drop in 2006-07 by about $385 million. The decline is primarily due to lower equity and fixed income realized rates of return, partly offset by additional deposits to the Heritage Fund and Medical Research Endowment Fund. In 2005-06, these funds had a realized rate of return of about 10 per cent because of the strong Canadian equity market. In 2006-07, the realized rate of return is expected to be about 6 per cent. The forecast is based on equity market returns reverting to the long-term average and on rising interest rates.

Alberta Capital Finance Authority’s investment income is forecast to continue to decline over the next three years because interest rates on new loans that are being issued are lower than the rates on maturing longer-term loans.

Other investment income is expected to increase in 2006-07 and 2007-08, primarily due to higher interest rates and higher balances in the Sustainability Fund and the Capital Account, and income earned on the new Alberta Cancer Prevention Legacy Fund. In 2008-09, other investment income declines as the Capital Account is drawn down to fund capital projects and the Debt Retirement Account continues to be drawn down to pay off maturing debt.

Revenue from other sources is estimated at $4.3 billion in 2006-07, essentially unchanged from 2005-06. Increasing net income from commercial operations, primarily Alberta Treasury Branches, is offset by lower timber rentals and fees and lower health care insurance premiums revenue.

Timber rentals and fees are decreasing due to forecast lower lumber prices and the reduction associated with the updating of Alberta’s Softwood Stumpage System, effective January 1, 2006. Health care insurance premiums decrease in 2006-07 because the threshold at which low-income families and individuals begin to pay premiums has been raised by $5,000.

Over the following two years, revenue from other sources is expected to remain relatively flat.

Economic

• The budget is based on continued strong Alberta and world economic growth. The U.S. budget and current account imbalances have the potential to disrupt world financial markets and significantly reduce U.S. and global economic growth in the medium term.
• Higher-than-expected increases in overall consumer and wholesale prices could cause inflationary pressures to emerge nationally and internationally. Monetary authorities would respond by raising shortterm rates higher than expected, triggering slower world economic growth.
• In Alberta, tight labour markets and the robust Alberta economy could exacerbate wage pressures, making some sectors become less competitive. Inflationary pressures could increase government and private sector costs, particularly related to the construction sector.

Energy Prices

• There is significant uncertainty over energy prices. A greater-thanexpected decline in world energy prices could negatively impact Alberta’s energy sector and reduce government revenue.
• Higher-than-forecast energy prices would increase government revenue, but global economic growth could be negatively affected.

Exchange Rate

• The budget assumes the Canadian dollar will average about 85 cents relative to the US dollar.
• A stronger-than-expected Canadian dollar could negatively affect exports and economic growth. Oil and gas activity could also be negatively affected due to lower returns for energy exporters. A high Canadian dollar also lowers government resource revenue, as energy prices and contracts are mainly based on the US dollar.

Investment Income

• Alberta has significant financial assets that are invested in a variety of financial instruments. Changes in equity markets, interest rates, exchange rates and other factors affect the rate of return on these assets.

Emergency and Disaster Assistance

• Alberta has provided emergency and disaster assistance over the last several years to deal with drought, BSE, floods, wild fires and mountain pine beetle infestations. The amounts and occurrence of these spending requirements are not predictable. The Sustainability Fund was created in part as a risk management tool that is available to offset these types of unexpected costs.