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Core Business: Fiscal Planning and Financial Management

Goal 1: A Financially Strong, Sustainable and Accountable Government
Goal 2: A Fair and Competitive Provincial Tax System
Goal 3: Effective Management of Financial Assets, Liabilities and Risks

Core Business: Regulation of Provincial Financial Institutions

Goal 4: Confidence in Provincially Regulated Financial Institutions and Insurance Companies

Core Business: Pension Policy, Regulation and Administration

Goal 5: Pensions that Deliver on Promises

Core Business: Financial Services

Goal 6: Financial Services Available to Albertans and Alberta Municipalities

 

DEPARTMENT OF FINANCE  9515 - 107 St. Edmonton, Alberta T5K 2C3 www.finance.gov.ab.ca

Office of Budget and Management The Office of Budget and Management (OBM) manages the provincial budget and business plan review and approval process, prepares economic and fiscal forecasts, and provides research, analysis and recommendations on the Province's fiscal, economic and taxation policies. OBM is responsible for intergovernmental fiscal relations and for providing statistical information about the Province. It also proposes and prepares accounting and financial control policies, budget documents, quarterly budget updates, annual financial statements and performance measurement reports.

Treasury Management Division

The Treasury Management Division (TMD) has responsibility for the Province’s on-going cash management including short-term borrowing and investments, management of banking and cash forecasting, and arranging short and long term financing for the government and provincial corporations. TMD is also responsible for overseeing the investment of the assets of the General Revenue Fund set aside to retire debt, monitoring and managing loans and guarantees and providing financial advice to other government departments.

The Pensions, Insurance and Financial Institutions Division (PIFI) is responsible for the regulation and, under certain circumstances, administration of credit unions, loan and trust corporations, financial institutions, insurance and private sector pension plans. It provides policy support and analysis to the Minister of Finance in these areas, as well as on Alberta Treasury Branches, public sector pension plans and the Canada Pension Plan. The Division is also responsible for five other entities that report to the Minister of Finance:

• As of March 31, 2004, the accumulated debt, less cash set aside for future payment, was $3.7 billion, significantly better than the original Budget 2003 target of $4.8 billion. Debt-servicing costs were $271 million, which is lower than the budgeted amount of $465 million largely due to a stronger Canadian dollar, higher than anticipated debt retirement, and lower short-term interest rates.
• On July 12, 2004, the Government announced a debt free Alberta. The Province will be setting aside an additional $3 billion to pay off the province's accumulated debt. The government will consult Albertans about their priorities for the post-debt era in the It’s Your Money survey.
• The budget was balanced for the tenth consecutive year. As reported in the 2003-04 Government of Alberta Annual Report, the Province ended the year with net revenue of $4.1 billion. This was $3 billion higher than the budgeted target of $1.1 billion.
• Despite facing disasters such as BSE and forest fires, 2003 was a very positive year for the Alberta economy. Employment grew by 47,900 new jobs, the highest rate in Canada, at 2.9%. Alberta also registered the second lowest unemployment rate among the provinces, at 5.1%. High energy prices spurred a sharp increase in conventional energy sector investment, and housing construction continued at near-record levels. Albertans also had the highest disposable income per capita in Canada, 15% higher than the national average. Overall, Alberta’s economic growth for 2003 is estimated at 3.1%.
• Alberta maintained the highest credit rating, ensuring that Alberta’s borrowing costs are the lowest among the provinces. During 2003-04, Dominion Bond Rating Service, Standard and Poor’s, and Moody’s Investor Services all confirmed Alberta’s triple A credit rating.
• Developing a new fiscal framework was a priority for Alberta Finance, with the establishment of the Sustainability Fund in 2003-04. Strong non-renewable resource revenue enabled the government to reach the fund’s target of $2.5 billion. The fund also allowed the government to allocate about $1 billion for BSE agriculture assistance, increased forest fire fighting costs and the provision of natural gas rebates.
• The government completed its review of Alberta’s automobile insurance system, leading to legislation and regulations that provide for a new premium rate structure, which will reward safe drivers and ensure fair compensation for Albertans injured in automobile accidents. Set for implementation on October 1, 2004, the automobile insurance reforms also include a new process to diagnose and treat minor injuries, a new Automobile Insurance Rate Board and a dispute resolution process for consumers with complaints regarding the calculation of their premium.
• Indexing of Alberta’s single-rate personal income tax system continued to benefit Albertans through an income exemption of $14,337, the highest in Canada. A family of four can earn up to $35,700 in 2003-04 without paying provincial income taxes, with the Alberta Family Employment Tax Credit offsetting any taxes paid up to that level. Alberta’s total tax load remains competitive in a global economy. At 26.1% of GDP, Alberta’s tax load is lower than all the G-7 nations, and 10 percentage points lower than the G-7 average.
• The government continued to reduce corporate income taxes in 2003-04, lowering the general rate to 12.5% on April 1, 2003. The small business rate was also reduced to 4% and the small business threshold continued to be $400,000. The tax cuts continued in 2004, with the general rate reduced to 11.5%, and the small business rate reduced to 3% effective April 1, 2004.

• The government continued to manage its financial assets and liabilities effectively. Returns on the Sustainability Fund and the Consolidated Cash Investment Trust Fund exceeded benchmarks based on Scotia Capital Treasury Bill indices. Return on funds invested from the Debt Retirement Account exceeded the market return on the debt by 5.7 basis points. Lower commission costs negotiated by the government saved the Province and its corporations an estimated $1.2 million on borrowing of $1.05 billion. Most of the borrowing in recent years has been on behalf of provincial corporations.

• Alberta Finance monitors provincially incorporated insurers, credit unions, trust and loan companies, and the Credit Union Central Alberta Ltd. (CUCA). All provincially regulated financial institutions met solvency requirements for 2003-04. No financial failures were recorded for insurance, loan or trust companies, CUCA or credit unions in 2003-04.

• The Minister of Finance is responsible for Alberta’s public sector pension plans except for the Teachers’ Pension Plans which fall under the Ministry of Learning. These four major plans are: the Local Authorities Pension Plan, the Special Forces Pension Plan, the Public Service Pension Plan, and the Management Employees Pension Plan. After suffering three consecutive years of decline in world capital markets, equity markets rebounded in 2004 and pension fund assets posted positive returns. However, the funding of the public sector pension plans is still a concern. The Pension Boards and the government will continue to monitor the situation closely.

• Alberta Finance administers the Employment Pension Plans Act (EPPA). The purpose of the Act is to safeguard the benefits promised to members of registered pension plans by setting minimum standards for funding, investment and qualifications for benefits. During the past fiscal year, a risk assessment system was implemented to support Alberta Finance’s shift in regulatory focus from routine compliance monitoring to risk management. Of the pension plans registered in Alberta, 99% met the minimum funding requirements set out in the EPPA.

• ATB Financial’s net income for the year was $172 million. ATB Financial continued to build momentum under the banner of ATB Investor Services, adding $355 million in assets under administration. At March 31, 2004, assets under administration stood at $544 million.

• The Alberta Capital Finance Authority (ACFA) aims to offer the lowest cost of borrowing to local authorities in Canada. The ACFA compares Alberta local authorities’ cost of borrowing to the Municipal Finance Authority of British Columbia (BCMFA) and the City of Toronto. The target was consistently met for short-term rates, but mid- and long-term rates, 5 through 25 years, were comparable to, or slightly higher than, the lowest rates in Canada.

To the Members of the Legislative Assembly:

In connection with the Ministry of Finance's performance measures included in the 2003-2004 Annual Report of the Ministry of Finance for the year ended March 31, 2004, I have:

1. Agreed information from an external organization to reports from the organization.
2. Agreed information from reports that originated from organizations included in the consolidated financial statements of the Ministry to source reports. In addition, I tested the procedures used to compile the underlying data into source reports.
3. Checked that the presentation of results is consistent with the stated methodology.
4. Checked that the results presented are comparable to stated targets, and information presented in prior years.
5. Checked that the performance measures, as well as targets, agree to and include results for all of the measures presented in Budget 2003..

As a result of applying the above procedures, I found the following four exceptions:

• For the measure Percentage of Financial Management Commission accepted recommendations implemented, management asserts that 11 of the 22 accepted recommendations have been implemented. Management provided the final budget and business plan documents, but not the underlying data to support their assertion that they have implemented the first component of the following recommendation:
  
  Recommendation No. 15-There should be regular reviews, including benefit-cost assessments, of all major government programs, policies and delivery mechanisms. The number of government departments and agencies should be reviewed.
  
• Baselines were not established as indicated would be done in Budget 2003 for two measures. Management has explained why baseline data was not available for:
• Stakeholder satisfaction with harmonization of financial sector policy and regulation
• Stakeholder satisfaction with Canada-wide harmonization of private pension legislation and regulatory processes
• There was no survey data available for one measure Percentage of local authorities satisfied with lending policies and efficiency of ACFA (biennial survey). Management has explained why survey data was not available.
  
  Therefore, I was not able to complete the relevant procedures for these four measures.
  
  Procedures 1 to 5, however, do not constitute an audit, and therefore I express no opinion on the performance measures included in the 2003-2004 Annual Report of the Ministry of Finance.
  
  
  [original signed]
  
  Fred J. Dunn, FCA
  Auditor General

• Go to Part 3:  Results Analysis
• Go to Part 1:  Preface