Last week’s first-quarter fiscal update indicated the province’s finances haven’t shaped up quite like the Stelmach Conservatives might have hoped for by the fall.
But the fiscal doomsayers have also been convinced to hold their tongues because the status quo has been maintained despite continued economic and revenue uncertainty.
In a press conference last Wednesday, Minister of Finance Ted Morton illustrated the see-saw situation between revenues and expenditures that has succeeded in maintaining fiscal projections outlined in the 2010 budget. 
“My message can be summarized quite simply: Canada is doing better than any other western nation, and Alberta is doing better than any other province. But we are an export-based economy, so if economic recovery stalls in the United States and the rest of the world, Alberta’s economy and government revenues will be negatively affected. So far this fiscal year has shown the global economic situation remains highly uncertain. Fluctuating oil prices, lower natural gas prices, faltering markets and a rising Canadian dollar contribute to continued budget volatility. Although global economic recovery appeared to be underway in the first quarter, recent trends are more negative. So the message for Alberta is clear, we need to exercise caution as this global volatility can directly impact our bottom line.”
Alberta is riding the shifting waves of global economic uncertainty with unpredictable results, added Morton.
“Our first-quarter results show that Alberta’s bottom line remains essentially unchanged from our budget forecast. Revenue increases in some areas have been largely offset by decreases in other areas, and increased expense has also played a role.”
Actual revenue was higher than forecast in the budget by almost three quarters of a billion dollars.
“On the revenue side, the revenue is now forecast at $34.6 billion, $602 million higher that forecast in budget,” said Morton. “The largest increase in revenue is from land sales, which is forecast to be $1.2 billion higher that we forecast at budget. We believe this is linked to the changes we’ve made in our royalty framework, and a growing confidence in Alberta from the oil and gas industry. We’re also forecasting an $887 million increase in corporate tax revenue, as well as an additional transfer of dollars from the federal government.”
But Morton stopped short of announcing Alberta was ready to let the good times roll once again.
“Offsetting the increases in revenue are drops in other areas, mainly personal income tax revenues, investment income and also an increase in claims for the drilling stimulus initiative. On the expense side, expense is up $609 million compared to budget, and the total is $39.3 billion. The increase is mainly for emergency and disaster assistance with the agricultural sector, flooding, forest fires and the fight against the mountain pine beetle. Approximately 85 per cent of that additional spending is under emergency and disaster assistance. Operating expense, by contrast, is up only slightly, but remains relatively flat overall. The increases that were in operating were for teacher salary changes, increased costs to children’s services programs and some federally-funded interim training programs.”
Alberta’s projected deficit will also ring pinker, coming in $7 million higher than forecast in the budget at the start of the fiscal year.
“With revenue and expense rising by about the same amount, the result is the bottom line remains relatively unchanged. We’re still projecting a deficit of $4.7 billion dollars. As we announced at budget, we will use our Sustainability Fund to cover that deficit, just as we did last year. So the good news here is that there’s still no new net debt. The Sustainability Fund is made up of savings that we’ve set aside in previous years in anticipation of more difficult economic times such as we’ve been experiencing for the last two years. Thanks to our savings in the Sustainability Fund, Alberta does not have to raise taxes like most other Canadian provinces and U.S. states,” said Morton.
The fair market value of the Heritage Fund has also taken a dip, according to Morton.
“Turning to the Heritage Fund, the slowing pace of recovery and declines in world equity markets led to a drop in the fund’s fair market value, although a portion of that drop in value is unrealized. On June 30, the fund’s fair market value was $14.1 billion. Despite the drop in value, it’s worthwhile to note, the fund outperformed it’s benchmarks in the first quarter, and is now expected to earn investment income of $684 million for 2010-11.”
Morton would offer little in the way of financial vision on the part of his government this quarter besides a wait-and-see approach.
“What does this mean? I think this means that we must stay the course set out in budget 2010. That course is still to be back in the black by budget 2012. We will continue to take a balanced and cautious approach to budgeting, we’ll keep a close eye on spending, we’ll protect the programs and services that Albertans value most.”