Alberta’s higher surplus continues to fuel growth in the province’s Heritage Fund and its capital account.

Revenue for 2007-2008 is forecast at $37.5 billion, an increase of $2.2 billion from budget. Expenses are also up $412 million to $33.6 billion. The surplus is now forecast at $4 billion, up $1.8 billion from budget, and savings are forecast to be $1.7 billion, an increase of $1.3 billion.

As a result, Alberta’s Heritage Fund is on course to grow by more than $1 billion this year after another deposit from the province’s unanticipated surplus. The government is also committing a significant portion of this year’s higher forecast surplus to capital funding.

According to the in-year surplus allocation policy, cash available from the unanticipated surplus is to be divided one-third to savings and investments, and two-thirds to capital spending, of which at least half must be used for capital maintenance. Based on this policy, and after cash adjustments, $1.9 billion is available to be allocated from the second quarter: $633 million to the Heritage Fund and $1.3 billion to support capital.

The total savings of $1.7 billion for the year means that $1.3 billion is going to the Heritage Fund; $227 million is being deposited in the Heritage Scholarship Fund; and, $150 million was added to the Medical Research Endowment Fund.

“We are increasing our savings and capital allocations as a result of higher revenues from income tax, investment income and non-renewable resources,” said Finance Minister Lyle Oberg. “However, this quarter clearly illustrates how volatile the markets can be. We will continue to keep a close eye on the Canadian dollar and the price of oil and gas to assess their impact on our long-term fiscal planning.”

The Heritage Fund is forecast to earn net income of $1.36 billion in 2007-2008, an increase of $145 million from budget. At September 30, the fund had a market value of $16.1 billion, down from $16.6 billion at March 31. Over the past six months, the strength of the Canadian dollar against other world currencies and rising interest rates had a negative impact on the market value of the fund’s foreign equity investments and fixed income securities.