The Third Quarter Fiscal Update consists of two parts – the updated 2005-06 forecast and the actual results for the first nine months of the fiscal year (April 1 to December 31, 2005).

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• 2005-06 Forecast
  • Highlights
  • Revenue
  • Expense
  • Alberta Sustainability Fund
  • Capital Plan
  • Net Financial and Capital Assets
  • Balance Sheet
  • 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 Third Quarter Activity Report
• Go to Fact Card (pdf)

• Surplus (net revenue) is forecast at $7.4 billion. This is $5.9 billion higher than budgeted and $1.5 billion higher than forecast in the Second Quarter Fiscal Update.

• Revenue is $7.3 billion higher than budgeted and $1.4 billion higher than forecast in the Second Quarter Fiscal Update. The increase is primarily due to record energy revenue and is net of the $1.3 billion in resource rebates provided to Albertans.

• Oil prices are forecast to average US$60.00 a barrel, unchanged from the second quarter forecast. Natural gas prices are forecast to average Cdn$8.40 per gigajoule (GJ), down 10¢ from second quarter.

• Expense is $1.4 billion higher than budgeted, largely due to increased natural gas rebates, capital grants and disaster/emergency assistance.

• Expense is $52 million lower than the second quarter forecast. Third quarter increases for health, continuing care, natural gas rebates, flood assistance and other initiatives are offset by lower costs for agriculture assistance.
• The surplus has been primarily allocated for capital and savings, including:
  • Capital Account – $3.6 billion for funding capital commitments in future years
  • Savings – $2.6 billion, including $1.3 billion for endowments and $1.3 billion to the Heritage Fund.
  • Sustainability Fund – $1.6 billion has been left unallocated in the Fund. Fund assets are forecast at $4.1 billion at March 31, 2006.

Revenue

Total Revenue

• Total revenue is $34.6 billion after deducting the $1.3 billion for resource rebates. Revenue is $7.3 billion higher than budgeted.

• The increase is primarily due to non-renewable resource revenue which is $6.7 billion higher than budgeted, reflecting record high energy prices and land lease sales.

• Income tax revenue is $1 billion higher than budgeted. However, the $1.3 billion for resource rebates, which are treated as refundable tax credits, more than offsets this increase.

• Revenue from other sources, primarily investment income, is $877 million higher than budgeted.

Non-Renewable Resource Revenue

Non-renewable resource revenue is forecast to reach a record $14.4 billion based on record energy prices and land lease sales. This is $6.7 billion higher than budgeted and $1.2 billion higher than second quarter.

Natural gas prices are forecast to average Cdn$8.40 per GJ. This is Cdn$2.80 higher than estimated in the budget but 10¢ lower than the second quarter forecast. Natural gas royalties are forecast to reach a record $8.2 billion, $2.8 billion higher than budgeted but $812 million lower than forecast in the second quarter. The decline from second quarter is due to a lower price and production forecast and revised claims for low well productivity and the deep gas well royalty holiday.

Oil prices are forecast to average US$60.00 per barrel. This is $18.00 higher than estimated in the budget, but unchanged from the second quarter forecast. Total oil royalties are forecast at $2.6 billion, $1.3 billion higher than the budget forecast and $185 million higher than in the second quarter. This includes a record $1.2 billion in royalties from synthetic crude oil and bitumen.

Revenue from bonuses and sales of Crown leases is forecast to reach a record $3.4 billion. This is $2.6 billion higher than estimated in the budget and $1.8 billion higher than the second quarter forecast. The 2005-06 forecast is equal to the combined total of the previous three highest years. Two sales alone, on December 14, 2005 and February 8, 2006, raised $1.2 billion, essentially equal to revenue received from the 23 sales in 2004-05, the previous highest year.

Tax Revenue

Personal income tax revenue is forecast at $5.9 billion, an increase of $703 million from budget and $153 million from second quarter. The increase reflects a higher-than-estimated 2004 tax base and stronger personal income growth. The 2004 tax year assessment data indicates revenue for the last two fiscal years was about $308 million higher than recorded, resulting in a positive prior years adjustment for 2005-06, and a higher base for the current-year forecast.

Albertans have been provided a $400 per person resource rebate this year. The rebate is a refundable tax credit and the $1.3 billion cost is reported as a reduction to personal income tax revenue.

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 $3.2 billion, a $39 million increase from budget. The increase is due to higher freehold mineral rights tax revenue.

Transfers from Government of Canada

Transfers from the Government of Canada are forecast at $3.4 billion, a decrease of $138 million from budget and $178 million from second quarter.

Health transfers and the Canada Social Transfer are $257 million lower than budgeted. The decrease reflects the reporting 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. Federal transfers for agriculture support programs are also down $128 million from budget because of lower cost-shared expenses.

Partly offsetting these decreases is a $247 million increase in other transfers including flood disaster assistance and early learning and child care.

Investment Income

Investment income is forecast at $2.1 billion. This is $730 million higher than budgeted and $184 million higher than second quarter.

The increase from budget primarily reflects higher Heritage Fund and endowment fund income due to stronger-than-expected Canadian equity market performance. The Heritage Fund is forecast to have a realized return of about 10 percent in 2005-06.

Other Revenue

Other revenue is forecast to be $246 million higher than budgeted and $143 million higher than second quarter. The increase from budget includes:

• $99 million in net gaming and liquor revenue.
• $39 million for timber rentals and fees, net of the revenue reduction for updating Alberta's Softwood Stumpage System, effective January 1, 2006.
• $108 million net increase in other revenue.

Expense

• Expense is $1.4 billion higher than budgeted but $52 million lower than the Second Quarter Fiscal Update forecast. The increase from budget is due to
  • Natural gas rebates – $441 million increase funded from the Sustainability Fund.
  • Disaster/emergency assistance – $319 million increase funded from the Sustainability Fund.
  • Capital grants – $521 million increase funded from the Capital Account.
  • Other expenses – $119 million net increase.

Sustainability Fund

Natural Gas Rebates – $726 million in natural gas rebates are being provided, an increase of $441 million from budget. The increase is due to higher natural gas prices and the addition of October to the months eligible for rebates (October to March).
Disaster/Emergency Assistance – $452 million in disaster/emergency assistance. This is an increase of $319 million from budget but $70 million lower than the Second Quarter Fiscal Update forecast.

• Flood Disaster Assistance – $171 million. Cost is partly offset by $132 million in federal transfers.
• Agriculture Emergency Assistance – $52 million increase from budget. Total 2005-06 BSE assistance is forecast at $185 million. Cost is partly offset by $11 million in federal transfers. BSE assistance is $118 million lower than forecast in second quarter largely due to lower costs associated with the Fed Cattle Set-Aside program.
• Wildfire Costs – $88 million increase from budget.
• Mountain Pine Beetle Costs – $8 million.

Capital Account
Capital grants funded from the Capital Account have increased by $521 million from budget and $40 million from second quarter. The increase from budget includes additional capital grants to health authorities, post-secondary institutions, municipalities, school boards and other local authorities.

Other Expenses
$119 million net increase in other expenses. This includes a $157 million increase in expenses charged against the Contingency Allowance, partly offset by a $31 million decrease in debt servicing costs and a net $7 million decrease in dedicated revenue/expense items.

Ministry Changes

Advanced Education – $84 million net increase from budget primarily for capital grants to post-secondary institutions.

Agriculture, Food and Rural Development – $114 million net decrease from budget. Increases in income stabilization and product and market research are offset by decreases in production insurance payments and the Fed Cattle Set-Aside program.

Children’s Services – $28 million increase from budget for Early Learning and Child Care initiatives.

Community Development – $51 million increase from budget including grants to libraries and Calgary Zoo.

Education – $94 million net increase from budget primarily for school operations and maintenance, new modular classrooms, relocation of portables, capital grants, increased fuel costs and other operating support.

Gaming – $74 million net increase from budget including capital grants to Edmonton Northlands, Calgary Exhibition and Stampede, and world disaster assistance.

Health and Wellness – $231 million net increase from budget. Includes increases for access and wait time projects, electronic health records, continuing care and capital grants for health facilities infrastructure.

Infrastructure and Transportation – $566 million net increase from budget. Includes additional cost of natural gas rebates; increased capital grants for water, wastewater and ‘Water for Life’ projects; and higher operations and maintenance costs.

Innovation and Science – $14 million net increase from budget to provide business service support for early-stage companies.

Municipal Affairs – $179 million increase from budget. Includes $171 million in flood assistance and $8 million primarily to assist small urban and rural communities.

Seniors and Community Supports – $141 million increase from budget, including increases for rural affordable supportive living/affordable housing, lodge renovations, continuing care initiatives, a legal settlement, and Persons with Developmental Disabilities contracted agency salary increases.

Sustainable Resource Development – $96 million increase from budget for forest fire-fighting costs and addressing mountain pine beetle infestations.

Net Financial and Capital Assets

• Net Assets – Net assets are forecast at $33.2 billion at March 31, 2006, including capital assets of $11.5 billion.

• Capital Account – Capital Account assets are forecast at $4.2 billion, an increase of $3.6 billion from March 31, 2005. These assets are available to fund capital commitments for future years.

• Accumulated Debt/Debt Retirement Account – Sufficient funds are available in the Debt Retirement Account to repay the remaining accumulated debt as it matures.

• Heritage Fund – The book value of the Heritage Fund (value of external assets) is forecast at $13.4 billion, an increase of $2.1 billion from March 31, 2005. The increase includes a $1 billion allocation to the Heritage Fund, plus $345 million for inflation-proofing, and $750 million for the Advanced Education endowment.

• Endowment Funds –Allocations have also been made to other endowment funds, including $250 million to the Scholarship Fund, $200 million to the Medical Research Endowment Fund, and $100 million to the Science and Engineering Research Endowment Fund.

Balance Sheet

Actual Results

For the first nine 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 Third Quarter Activity Report