EDMONTON – The government of Alberta released its second quarter budget update Wednesday. In the first six months of the fiscal year, the province reports resource revenue was $1.4 billion lower than expected, and expenses were $293 million higher than expected, resulting in a deficit for the first six months of 2012-2013 of $1.3 billion.
The province continues to forecast a deficit of between $2.3 and $3 billion for the entire fiscal year.
Revenue and Expenses
Finance Minister Doug Horner says the biggest factor contributing to Alberta’s deficit is the difference between world oil prices and what Alberta producers receive for their oil. The differential currently sits at about $29 a barrel.
“The disconnect is in that differential on the revenue side,” Horner says. “We’ve had a substantial drop in our revenue from the oil and gas sector, and prices obviously on the global perspective, but when you look at the other indicators of growth within our province, personal income growth is up. It’s actually up higher than we even thought it was going to be.”
For 2012-2013, the province forecast Personal Income growth at 6.2 per cent. However, that number has been revised in the second quarter to 6.7 per cent. Alberta’s weekly earnings are the highest in Canada; almost 20 per cent above the national average.
Income and job opportunity drive people to Alberta, which is contributing to very high population growth. While Horner says a population expected to grow by 95,000 new Albertans helps the economy in terms of revenue from commercial operations, fees and licences, it also puts more pressure on infrastructure demands.
Opposition parties say there is no excuse the province should be looking at a deficit at all.
“The fiscal update, I would say, is shocking,” says Wildrose Leader Danielle Smith.
“It is an absolute train wreck that we have a government that is overseeing one of the strongest economies in North America that can’t balance its budget.”
“Our energy revenues are still, let’s face it, near record highs,” Smith adds. “No other province enjoys the level of windfall revenues from energy resources that we do, and they still can’t manage to balance the books.”
The province says it’s “holding the line” on spending, and is still forecasting a deficit of between $2.3 and $3 billion for the fiscal year. However, the opposition says there’s more to the deficit than what the PCs are laying out.
“We’re facing a $3 billion deficit that they will admit to, a $2 billion hidden deficit for a total of at least $5 billion dollars,” says Smith.
“There’s the $3 billion deficit that ...they have on their books here, but there’s also $2 billion in provincially-billed infrastructure that - because they call it an asset - they don’t have to count it as an expense essentially, but they still have to pay for it,” says Wildrose Finance critic Rob Anderson.
In the second quarter fiscal update, the province listed its Financing Requirements as $3.2 billion. However, this amount does not include an estimated $1.1 billion in borrowing for Highway 63 twinning, $625 million of borrowing since the end of September, and an estimated $1.1 billion in borrowing for provincial corporations for the remainder of the fiscal year.
Therefore, the province could be borrowing a total of about $6 billion.
“There are additional amounts of dollars that are not included in the deficit figures that they are talking about today,” adds Smith. “We’re looking at 5 to $6 billion in deficit.”
Anderson is concerned about the impact that borrowing will have on Alberta’s Sustainability Fund.
“The amount that’s coming out of the Sustainability Fund this year is over $5 billion dollars,” he says.
Expenses for the first six months were $293 million higher than expected. The province says this was due mostly to disaster and emergency assistance.
The budget allocated $44 million to disaster/emergency assistance. The forecast expenditure for the six month period was $17 million. However, the actual expenditure for disaster/emergency assistance was $487 million, due to funding for forest fires and severe hail storms.
When it comes to spending, Horner says consultations with Albertans revealed public priorities are Education, Health and Infrastructure. Opposition parties, however, feel the PCs have bitten off more than they can chew.
“They don’t have the discipline to prioritize,” says Smith.
“They made massive promises worth billions of dollars,” says NDP leader Brian Mason. “By our estimates, they exceeded $6 billion in promises.”
“It’s clear from this budget that those promises will be broken. This is a broken promise budget. They completely misled Albertans about where they were going in terms of the finances of this province,” adds Mason. “We’re going to see not only broken promises, but program cuts coming.”
The Fiscal Update Document itself
The Canadian Taxpayers’ Association feels there was a lot missing from the second quarter fiscal update.
Derek Fildebrandt says “for the second quarter in a row, the provincial government has completely broken section 5.1” of the Government Accountability Act of Alberta, which “requires the provincial government quarterly provide a balance sheet on revenues and expenditures, consolidated.”
“The government has not provided that,” says Fildebrandt.
In addition, Fildebrandt says this second quarter fiscal update also violates section 9.1 of the Government Accountability Act of Alberta, which “requires them to provide a consolidated balance sheet for the fiscal year.”
“They don’t provide it, it’s not there,” adds Fildebrandt, who says the Canadian Taxpayers’ Association will be filing a Freedom of Information Request to get the missing information.
Horner says the new format of the second quarter update took into account feedback after the first quarter update and suggestions from the Auditor General. The second quarter update includes a 9 month estimate, but not an end-of-year estimate.
Horner says the absence of the yearly numbers was a “financial management” decision, not a political one. The opposition doesn’t agree.
“I don’t believe it for a minute,” counters Smith.
“They’re still forecasting that oil is going to be at $92 a barrel. Right now, it’s somewhere between $85 and $86 a barrel, so they’re already off several dollars a barrel. I think he just doesn’t want to show the true numbers because what I think the true numbers would show is that it could potentially be much, much worse.”
“When the government starts to hide the numbers, you know there are serious problems with fiscal sustainability of the province,” adds Fildebrandt.
The Future
The bottom line, according to Horner is: “we’re on solid ground.”
“We have a plan for the future,” he says, “and the future is bright.”
Still, the province identifies several risks to Alberta’s economic future, including the US fiscal cliff, the Euro zone debt crisis, and lack of pipeline access to alternate markets are risks Alberta is facing financially.
“The customer that we have today isn’t the one we’re talking about,” says Horner. “We want to have customers of tomorrow.”
Still, Horner says more pipelines aren’t necessarily the sole solution.
“I wouldn’t say they’re the magic bullet, but they’re certainly a big part of loading the gun. What we need to be able to do is to access more than one customer.”
Meantime, the official opposition is preparing its own “debt-free capital plan” for Albertans.
“They want our priorities met, and they want this government to do meet them within a balanced budget,” says Smith.
Wildrose financial critic Rob Anderson says the opposition is planning to release its “more modest” plan in January.
“We’re not competing to be Santa Claus,” he explains.
You can read the 2012-2013 second quarter fiscal update below:
2012.2ndquarter.report
More to come …
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