Higher revenue returns result in better financial picture
| Posted: Saturday, Jun 30, 2012 06:00 am
Better land sales, investment income and lower spending added up to a much lower deficit for Alberta last year, as the province finished the year with a scant $23 million deficit.
Despite the lower deficit number, nearly $3.7 billion came out of the province's sustainability fund in the fiscal year, which runs from April 2011 to March 2012. This left the fund with about $7.5 billion, which is $2.2 billion higher than the budget estimated.
The $23 million deficit is a small fraction of the government’s nearly $40 billion budget, prompting local MLA and finance minister Doug Horner to describe it as “essentially balanced.”
“To the average person and the average company $23 million is a lot of money and it is to me too, but when you stack it up against a nearly $40 billion budget it becomes a fairly small number.”
The apparent contradiction between the $23 million deficit and the big hit to the sustainability fund, comes about because of payments for capital projects and revenue that accrues to government agencies that stays with them instead of being transferred to the government’s bank accounts.
As an example, $195 million the Alberta Treasury Branches brought in will stay with the company, as will $305 million for the Agricultural Financial Services Corporation, which covers farm insurance and other agricultural programs.
Horner said the government used money from the sustainability fund to invest in projects that would serve the province for decades.
“We budgeted to build the infrastructure that Albertans wanted us to build.”
The Heritage fund brought in roughly $800 million in investment income last year, but $454 million of that remains in the fund, to prevent it from losing value. The fund is now worth $16.1 billion.
Alberta's deficit was projected at $3.4 billion when the budget was first introduced in March, 2011. The government received much higher prices for land sales and crown leases throughout the year, bringing in an additional $2.2 billion. Oil prices also turned the corner, especially late in the year, bringing in nearly $700 million more than budgeted.
Most government ministries also spent less than they originally budgeted and the government brought in much more in investment income in the last quarter of the year, as financial markets did better than expected.
The opposition chalked up these moves to little more than luck that kept the government’s books from sinking deep into the red.
“I think the government has a horseshoe in its pants,” chided NDP leader Brian Mason.
“It just shows that you can win the lottery and still not balance your budget. We had record land sales, we had record oil prices, took in almost $12 billion in royalty revenues and the PCs still managed to run a $3 billion cash shortfall,” said Wildrose finance critic Rob Anderson.
Liberal Leader Raj Sherman said it was just a good roll of the dice.
“This is as good as it gets, two lucky rolls of the dice with the markets and the with the price of oil and we still have a deficit, we should have had a surplus.”
Oil price concern
Last year's budget was based on an oil price of $89.40, so when the average price was much higher, ending the year at an average of $97.33 the government did much better.
This year's budget is based on an oil price of over $99, but prices have been lower, hovering below $80 in the last few weeks, raising concerns about this year's budget.
The government will release a fiscal update for this year in late August, but Horner said for now he is focusing on the other side of the ledger.
“We have direct control over what we spend, we don’t have direct control over oil prices or royalty resource revenues.”
Mason said the government should have been in a surplus situation this year.
“While the government might be satisfied with where we are at, I don’t think Albertans should be.”
He and Sherman both favour higher taxes on wealthier Albertans and corporations so Alberta can save more.
“Peter Lougheed had a progressive income tax, Stephen Harper has a progressive income tax. We should have a progressive income tax. This government has shifted the tax burden onto working families.”
Anderson said the solution is lower spending and he advised the government to cut spending and invest more in the sustainability fund.
He also criticized Horner and Premier Alison Redford for using high estimates of oil prices in this year’s budget.
“They cherry pick the estimates that they want. If you go into the private sector you will see oil price projections that range from $65, $70 a barrel oil all the way up to $110, they are all over the map. They always seem to pick the high end.”
Scott Hennig of the Alberta Taxpayers’ Federation said the government is in for a rough ride this year if oil prices don’t make a dramatic and extended upswing.
“For the rest of the year they are going to have to have over $100 oil to get back to even a $1 billion deficit.”
Redford committed to a balanced budget in 2013 in both her leadership bid for the party and the last election, which Hennig said will be very difficult.
“I think Doug Horner has a heck of a job trying to balance the budget for 2013 and I wish him well. I think he is going to have to make some spending cuts.”