2004-05 Quarterly Budget Report:
Second
Quarter Fiscal
Update
Released: November
29, 2004
Table of Contents
The
Second Quarter Fiscal Update consists of two parts – the updated
2004-05 forecast and the actual results for the first six months
of the fiscal year (April 1 to September 30, 2004).
2004-05
Forecast
Highlights
-
In
July 2004, the Province announced that high energy prices will
allow an additional $3 billion to be set aside to pay off completely
Alberta's remaining accumulated debt.
-
Energy
prices have continued to increase since the release of the First
Quarter Fiscal Update. Oil prices are now expected to average
US$42 per barrel for the fiscal year and natural gas prices
Cdn$6.85 per thousand cubic feet (mcf).
-
Total
revenue is now forecast to be $5.7 billion higher than the budget
estimate and $1.7 billion higher than the first quarter forecast.
- Partly offsetting
the higher revenue is an increase in total expense. Expense is
$1.9 billion higher than budgeted and $490 million higher than
the first quarter forecast. The increase from budget includes:
-
$830 million for agriculture, forest fire and flood disaster/emergency
assistance from the Sustainability Fund,
-
$359 million for natural gas rebates from the Sustainability
Fund,
- $468
million increase in capital grants, primarily for health capital,
from the Capital Account,
- $215
million net increase for in-year initiatives, including funding
for health, education and seniors from the Contingency Allowance.
- Net Revenue
(revenue minus expense, prior to Sustainability Fund and Capital
Account transfers) is forecast at $4.1 billion. This is $3.8 billion
higher than estimated in the budget.
- The Sustainability
Fund assets are forecast at $3.2 billion (after allocations for
natural gas rebates, emergency/disaster assistance, and reallocations
to the Debt Retirement Account and Capital Account). This is $667
million higher than the budget estimate of $2.5 billion.
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Revenue
Non-Renewable
Resource Revenue
Non-renewable resource revenue is forecast at $9.6
billion. This is $4.8 billion higher than the budget estimate and
$1.8 billion higher than forecast in the First Quarter Fiscal
Update.
The increase has been driven by the dramatic rise
in oil and natural gas prices. Oil prices have averaged about US$43.50
a barrel for the first eight months (April to November) of the fiscal
year. This is 45% higher than for the same time period last year.
Natural gas prices have averaged about Cdn$6.50 per mcf for the
first eight months. This is 15% higher than for the same time period
last year. Higher prices have been the result of increased demand,
little spare production capacity, and concerns over supply disruptions.
Natural gas royalties are forecast at $6.8 billion,
up $3.5 billion from the budget estimate. Natural gas prices are
expected to average Cdn$6.85 per mcf for the fiscal year. This is
$2.65 higher than budgeted and 84 cents higher than forecast in
the First Quarter Fiscal Update.
Total oil royalties are forecast at $1.7 billion,
$1.1 billion higher than budget. The oil price is expected to average
US$42.00 per barrel for the year, a $16 increase from the budget
and $8 higher than forecast in the First Quarter Fiscal Update.
The Fiscal Responsibility Act requires non-renewable
resource revenue above $4 billion to be transferred to the Sustainability
Fund. This transfer is now forecast at $5.6 billion.
Tax
Revenue
Total tax revenue is forecast at $10.1 billion. This
is $114 million higher than estimated in the budget, but $414 million
lower than reported in the First Quarter Fiscal Update.
Personal income tax revenue is forecast at $4.8 billion,
$252 million lower than estimated in the budget, and $460 million
lower than the first quarter forecast. At first quarter, federal
2003 tax assessment information indicated higher-than-estimated
revenue. However, it now appears the unexpected strength in the
preliminary assessment data was due to faster processing of assessments
rather than stronger assessments.
Corporate income tax revenue is forecast at $2.2 billion,
$199 million higher than the budget estimate, and unchanged from
first quarter forecast. Strong energy prices have boosted the corporate
profit outlook.
Other tax revenue is forecast at $3.1 billion, $167
million higher than estimated in the budget. The increase reflects
higher revenue from freehold mineral rights tax, tobacco tax, fuel
tax and insurance taxes. Changes to seniors' school property taxes,
effective January 1, 2005, are expected to reduce school property
tax revenue by $1 million in the 2004-05 fiscal year.
Transfers
from Government of Canada
Transfers from the Government of Canada are forecast
to increase by $299 million to $3.3 billion, comprising:
-
$272 million net increase in federal agriculture transfers. $294
million for Bovine Spongiform Encephalopathy (BSE) related assistance
is partly offset by lower crop reinsurance transfers.
-
$27 million net increase in other transfers. $60 million in expected
federal flood disaster assistance is partly offset by delayed
transfers for transportation infrastructure and other reductions.
The second quarter forecast does not include the expected
increase in federal health transfers of about $200 million related
to the 2004 Canada Health Accord. Details concerning this transfer
have not yet been finalized.
Investment
Income
Investment income is forecast at $1.6 billion, $391
million higher than estimated in the budget. The increase is due
to:
- $307 million
increase in Heritage Fund income,
- $40 million
increase in endowment funds income, and
- $44 million
net increase in other investment income.
Other
Revenue
Total revenue from all other sources is $40 million
higher than estimated in the budget. Major changes from budget include:
- $24 million
increase in timber royalties and fees due to higher commodity
prices for lumber products,
- $22 million
increase in net gaming revenue related to higher slot revenues
and lower operational costs,
- $35 million
net decrease in health care insurance premiums. The exemption
for seniors from paying premiums effective October 1, 2004 will
reduce revenue by $44 million. This is partly offset by an increased
forecast for non-senior premiums revenue,
- $29 million
net increase in other revenue.
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Expense
Total expense is $1.9
billion higher than the budget estimate. The increase includes:
- $1.2 billion for emergency/disaster
assistance and natural gas rebates from the Sustainability Fund,
- $468 million in increased
capital grants from the Capital Account,
- $215 million net increase
for in-year initiatives drawn against the Contingency Allowance,
and
- $26 million increase
in dedicated revenue/expense.
Sustainability
Fund
Disaster/Emergency Assistance – $830 million
is being provided, an increase of $451 million from first quarter:
- $630 million net increase
for BSE-related assistance, partially offset by $294 million in
increased federal BSE-related transfers,
- $124 million for
forest fire-fighting costs, and
- $76 million for flood
disaster assistance, partly offset by $60 million in increased
federal transfers.
Natural
Gas Rebates – $359 million in rebates are now expected
to be paid during the November to March period, an increase of $74
million from the first quarter forecast. Rebates are forecast to
be paid in all five eligible months, with the first tier level reached
in three of the months and the second tier level in two.
Capital
Account
As reported in the first quarter, capital grants funded from the
Capital Account have been increased by $503 million. This included
$500 million for health capital grants and $2.5 million for infrastructure
grants to Banff and Jasper.
Due
to changes in construction schedules, $460 million of the health
grants will now be provided in 2004-05 and $40 million in 2005-06.
Also, in October, a $50 million rural supportive living capital
program was announced, with $5 million being funded in 2004-05 from
the Capital Account and $45 million in 2005-06.
The
total net increase in capital grants from the Capital Account in
2004-05 is $468 million.
Funding
From the Contingency Allowance
As reported in the first quarter, the $260 million Contingency Allowance
budgeted for in-year, non-emergency initiatives has been fully committed.
This included $215 million, primarily for health, education and
seniors, and $45 million in revenue reductions in health care insurance
premiums and property taxes paid by seniors.
Non-emergency
ministry program spending increases from first quarter have been
offset by lower program spending in other areas or reflect increases
in dedicated revenue/expense.
Ministry
Changes
Agriculture,
Food and Rural Development expense is $592 million higher
than budgeted. $630 million has been provided for BSE-related costs,
a $417 million increase from the first quarter forecast. Partially
offsetting this is a net $38 million reduction in crop insurance
and other programs.
Health
and Wellness expense is $362 million higher than budgeted.
As noted in the first quarter, $200 million is for health authority
operating expense, $150 million for capital grants, and $12 million
for various public health initiatives funded by federal transfers.
Infrastructure expense is $663 million higher than budgeted. $359
million is being provided for natural gas rebates and $315 million
for health infrastructure. This is partially offset by a net $11
million decrease related to transfers to capital investment and
other changes.
Learning
expense has increased by $51 million. As reported in the first quarter,
a $52 million increase was provided to hire new teachers and reduce
class size. This is partially offset by a $1 million transfer from
program expense to capital investment.
Municipal
Affairs expense has increased by $78 million from budget.
As reported in the first quarter, the increase is for flood disaster
assistance and infrastructure grants to Banff and Jasper.
Seniors
expense has increased $34 million from budget, reflecting the $30
million provided for Alberta Seniors Benefit enhancements and $4.5
million for supportive living projects previously reported in Infrastructure.
Sustainable
Resource Development expense has increased $124 million
from budget for forest fire-fighting costs. This is $33 million
higher than the first quarter forecast.
Other ministry
increases from budget include:
Legislative
Assembly – $3 million for the Senate nominee election.
Energy
– $3 million for well abandonment costs and other EUB expenses
fully offset by industry levies.
Human
Resources and Employment – $5 million for Workplace
Health and Safety and the Labour Market Agreement for Persons with
Disabilities, fully offset by increased WCB and federal transfers.
Justice
– $2 million to meet demands under the Child, Family and Youth
Enhancement Act and the Criminal Division of the Calgary Provincial
Court.
Solicitor
General – $6 million increase. $3 million for the
Victims of Crime Fund and $3 million for Project KARE, an RCMP task
force.
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Alberta
Sustainability Fund
Assets
of the Sustainability Fund
-
The net transfer to the Sustainability Fund (after
the $1.2 billion in allocations for emergencies/disasters and
rebates) is forecast to be $4.2 billion higher than budget and
$594 million higher than the first quarter forecast.
-
As reported in the First Quarter Fiscal Update, $3.7
billion will be reallocated from the Sustainability Fund to
the Debt Retirement Account and $1.1 billion is being reallocated
to the Capital Account. This leaves the net assets of the Sustainability
Fund at nearly $3.2 billion, $667 million higher than budgeted.
Sustainability
Fund Transfers
- The Fiscal Responsibility Act requires non-renewable
resource revenue above $4 billion to be transferred to the Sustainability
Fund. This transfer is forecast at $5.6 billion, $4.8 billion
higher than budgeted.
- Withdrawals from the Fund are permitted to pay for the cost
of emergencies/disasters, rebates under the Natural Gas Price
Protection Act and First Nations settlements. Withdrawals
of $1.2 billion are forecast:
- $830 million for emergency/disaster assistance for agriculture,
forest fires and floods, and
- $359 million for natural gas rebates.
- Other net transfers to the Fund total $789 million, consisting
of:
- $863 million increase in revenue (excluding non-renewable
resource revenue, $45 million in revenue reduction initiatives
charged against the Contingency Allowance, and net $26 million
in dedicated revenue/expense increases),
- $23 million reduction in debt servicing costs,
- less $97 million required for the net increase in capital
cash requirements and financial assets of funds and agencies.
Cash
Adjustments
-
As reported in the First Quarter Fiscal Update,
$510 million in cash became available for transfer to the Sustainability
Fund after March 31, 2004, because of the better-than-forecast
2003-04 fourth quarter results. This amount was not reflected
in the Budget 2004 estimate.
-
Other cash adjustments are $771 million lower than estimated
in the budget primarily related to natural gas royalties. Cash
adjustments reflect the differences between accrued revenue
and cash receipts, non-cash expenses and transfers not reported
on the income statement.
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Capital
Plan
-
Capital
asset acquisitions, which include capital grants to local authorities
and capital investment in provincial government-owned projects,
are forecast at $2.85 billion. This is $460 million higher than
budgeted, but $32 million lower than reported in the first quarter.
The decrease from the first quarter forecast is mainly due to
construction scheduling changes in health infrastructure.
-
As reported in the First Quarter Fiscal Update the
increase from budget primarily reflects additional capital grants
for health capital funded from the Capital Account.
-
The changes in the Capital Plan include:
- Health
Facilities and Equipment – The First Quarter
Fiscal Update reported an additional $500 million in
health capital grants to health authorities for facilities
and equipment. Subsequent changes in construction schedules
will result in $40 million of this funding and $12 million
of the original health capital budget not being required until
2005-06. In October, a $50 million capital program was announced
for the development of supportive living facilities for low
and moderate income seniors in rural communities. $5 million
will be used in 2004-05 and the remaining $45 million in 2005-06.
Total spending on health related facilities and equipment
will be $886 million, a net increase of $453 million over
the original budget.
- Provincial
Highway Network – As reported in the First
Quarter Fiscal Update, the $18 million increase from
budget is for the carry-over of unfinished projects in 2003-04,
for highway tourism signage, and other capital investment.
- Community
Facilities – As reported in the First Quarter
Fiscal Update, the $17 million increase from budget includes
additional funding of $14 million for the Northern and Southern
Jubilee Auditoria refurbishment projects and $2.5 million
for the Banff/Jasper Special Infrastructure Assistance Program.
- Other
Infrastructure – As reported in the first quarter,
there is a $10 million reduction. Project rescheduling for
some projects is partly offset by an addition of $3.5 million
for the Canmore Nordic Centre Facility in preparation for
the 2005 Cross Country Ski World Cup.
- General
Government Capital – There is a $21 million
reduction in general government capital. This reflects a $41
million reduction in 2004-05 costs for the Calgary Courts
Centre due to rescoping of the project. Funding for the project
is being provided from the Capital Account rather than through
alternative financing. Partly offsetting this decrease is
$20 million in additional spending for vaccines, land purchases
and other capital projects.
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Net
Financial and Capital Assets
-
Net
Assets –
Alberta's net assets are forecast at $25.1 billion as of March
31, 2005. This includes nearly $11 billion in capital assets
and is net of $5.2 billion in pension obligations.
-
Accumulated
Debt – Accumulated debt, net of cash set aside
in the Debt Retirement Account, is forecast to be eliminated
as of March 31, 2005. This is a $3.7 billion reduction from
March 31, 2004 and a $3 billion improvement from the budget
estimate. At March 31, 2005, $3.5 billion will be in the Debt
Retirement Account to pay off accumulated debt as it matures.
-
Capital
Account – The Capital Account is forecast at
$674 million as of March 31, 2005. Subsequent to Budget
2004, $510 million from better-than-forecast 2003-04 fourth
quarter results was transferred to the Sustainability Fund and
then reallocated to the Capital Account. Withdrawals from the
Capital Account have been increased from budget by $554 million
($468 million for capital grants to local authorities and $86
million for capital investment).
-
Heritage
Fund – The book value of the Heritage Fund is
forecast at $11.3 billion as of March 31, 2005, unchanged from
budget. This represents the recorded value of Heritage Fund
external investments. The fair market value of the Heritage
Fund at September 30, 2004 was estimated at $11.9 billion.
-
Pension Obligations – Pension obligations are
forecast at $5.2 billion, an increase of $22 million from budget
and $141 million from March 31, 2004. They are scheduled for
elimination under a separate legislative plan and are not subject
to the Fiscal Responsibility Act.
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Assets,
Liabilities and Net Assets
Net
Financing Requirements
Fiscal
Year Assumptions
Capital
Investment and Amortization
Capital
Grants to Local Authorities and Other Infrastructure Supporta
Actual
Results
For
the first six months of 2004-05
Method
of Consolidation
This financial summary
is prepared on the same basis as used in Budget 2004.
The results of all government
departments, funds and agencies, except those designated as commercial
enterprises, are consolidated on a line-by-line basis. Revenue and
expense transactions between consolidated entities have been eliminated.
The accounts of Crown-controlled
corporations and provincial agencies designated as commercial enterprises
are consolidated on the modified equity basis, the equity being
computed in accordance with generally accepted accounting principles.
Basis
of Financial Reporting
The consolidated
fiscal summary reports revenue (including gains and losses from
sale of capital assets), expense (including amortization of capital
assets), and net revenue.
Expense
includes the province's annual cash payments towards the unfunded
pension obligations. Expense excludes the annual change in the unfunded
pension obligations, which is a non-cash expense that does not affect
borrowing requirements.
Revenue
and expense are recorded using the accrual basis of accounting.
Cash received for goods or services which have not been provided
by period end is recorded as unearned revenue. Debt servicing costs
include interest payable, amortization of discount on debt issues,
and amortization of unrealized exchange gains and losses on unhedged
foreign currency debt.
Comparative
2003-04 figures have been reclassified where necessary to conform
to 2004-05 presentation.
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Consolidated
Fiscal Summarya
Expense
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