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With high energy royalties and soaring land lease sales, oil-rich Alberta inched closer to a balanced budget last year -- but will continue to spend its rainy day fund.
The province’s fourth-quarter report for the 2011-2012 fiscal year, released Thursday, shows a total deficit of just $23 million on its $39-billion budget -- “essentially balanced,” Finance minister Doug Horner said. The province had been forecasting a $3.4 billion deficit.
The changes come as welcome news to Alison Redford’s government, which has been under fire from the official opposition Wildrose Party for not managing to balance the books even as the province is awash in energy wealth. “What we have today is the evidence of a very robust economy and the best place in the world to be, the place where almost all other jurisdictions are looking to come and invest,” Horner said.
Annual economic growth came in at 5 percent, while the province added 60,000 residents and maintains the highest average weekly earnings for workers. But the figures, which were compiled for the quarter ending on March 31, don’t reflect the province’s current outlook: the price of oil has since fallen to around $80 US, with the opposition warning a continued drop could take billions out of provincial revenue.
Horner downplayed the impact, saying there are several factors, including the exchange rate and oil production, that will affect revenue. “That’s why nobody should be jumping out of windows today based on $80 oil,” he said.
The province will, however, still draw down its sustainability fund by $3 billion for “cash adjustments,” or transfers back to arms-length agencies and funds. That, effectively, is a $3 billion deficit at a time of record-setting provincial revenues, critics say.
“We’re coming off a year of near-record oil prices and land sales and they haven’t eliminated the deficit, saved a single penny for the future and they are still raiding our savings to pay for their overspending,” Wildrose finance critic Rob Anderson said in a statement. “It’s absolutely shameful that we continue to have nothing to show for the staggering amount of money we are taking in.”
New Democrat leader Brian Mason said the province continues to squander its energy wealth, and should raise royalty rates to contribute to its two savings funds, instead of spending from them. “While the government may be satisfied with where we’re at, I don’t think Albertans should be,” he said.
The fourth-quarter report shows higher-than-expected revenue from the province’s energy sector. Crown lease sales -- one-off windfalls paid by companies hoping to extract resources from a certain patch of land -- were $3.3 billion, $2.2 billion higher than expected and the third-highest year on record. Bitumen revenue from the province’s oil sands came in at $4.5 billion, with conventional oil and natural gas adding roughly another $3.5-billion. All told, oil and natural gas delivered more than $1 billion more in revenue than was forecast.
Income tax revenue, however, was down a combined 3 percent from budget forecasts. Personal income tax was $244 million less than hoped, while corporate tax was $110 million lower. Altogether, income taxes account for 30 percent of provincial revenue, roughly the same as non-renewable resources. The rest comes from transfer payments, fees, investment income and other taxes.
West Texas Intermediate oil prices had been forecast at $89, but averaged $97 throughout the 2011-2012 year. This week, however, the price is hovering around $80, while the province has forecast $98 in its 2012-2013 budget. Taken annually, a $1 drop in the oil price drains $223 million from provincial coffers, according to government estimates. Conversely, a weak dollar would help the province, leaving provincial officials hopeful that a slump in oil prices may be partially offset. Critics don’t think it will, and the exchange rate is almost exactly in line with government estimates so far this year.
Scott Hennig, Alberta director of the Canadian Taxpayers’ Federation, said the province needs to cut spending and freeze wages for public servants to get to a sustainable budget. “Oil at $80’s a good number, and they can’t balance the budget? They can barely balance the budget, and only with an asterisk with oil at $97. We got trouble here. We need to stop spending so much.”
Spending, meanwhile, was trimmed in half of the province’s ministries, and came in lower than had been projected earlier this year. Disaster relief funding spiked, through, due largely to last-year’s Slave Lake wildfires, leaving total spending up $273 million from the budget forecast. Total spending was up 2.6 percent from the previous year.
The $3 billion in cash adjustments come from its rainy day Sustainability Fund, which sat at $7.5 billion on March 31. The Heritage Trust Fund, meanwhile, had a strong year, with 8.2 per cent returns. Its fair value, as of March 31, was $16.1 billion -- less, adjusted for inflation, than two decades ago as the province continues to funnel much of its returns into general revenue.
Alberta’s total net assets are $26.7 billion, or $7,036 per capita, making it the only province with a positive balance sheet, the fourth-quarter figures show. Only Saskatchewan currently has a balanced budget, while Alberta expects to return to the black by 2013-2014. Horner declined to comment on whether they’d be able to hit the target, saying only: “That’s my job.”