Alberta’s strong economy is driving higher than expected provincial revenues and surplus expectations.

The province announced that revenue has increased $2.7 billion from budget (up $1.2 billion from its first quarter forecast), and its surplus is now forecast at $5.4 billion, an increase of $1.3 billion from budget (and also up $1.2 billion from the first quarter forecast).

Tax revenue increased nearly $2 billion due to personal income growth and stronger corporate profits, it said. Total revenue is forecast to be $35.1 billion. Personal income growth and updated assessment data for the 2005 tax year have combined to increase the personal income tax revenue forecast by an additional $1.4 billion. A stronger outlook for corporate profits has increased the corporate income tax forecast by $573 million.

“Tax revenue is increasing as the economy grows,” said Finance Minister Shirley McClellan. “At the same time it’s important to note that resource revenue is almost unchanged from the budget, and down $2.8 billion from last year, underscoring the importance of sustainable budgeting.”

While oil prices have remained strong, natural gas prices have softened. Resource revenue is now forecast to be only $197 million higher than budget and $334 million lower than forecast in the first quarter.

Higher income tax revenue has increased the provincial surplus. The surplus is forecast at $5.4 billion, an increase of $1.3 billion from budget and $1.2 billion higher than the first quarter forecast.

The stronger fiscal position of the province has allowed the government to invest in additional capital.
A further $930 million increase in capital allocations has been announced in the second quarter fiscal update, in addition to the $1.76-billion increase announced in the first quarter fiscal update. In total, capital funding has increased by $2.7 billion, including $895 million for 2006-07 projects and $1.8 billion for future years.

“We are increasing allocations to our Capital Plan to help address the needs created by growth and to add to support of communities across Alberta,” said McClellan.

The additional capital spending announced with the second quarter update includes support for post-secondary facilities, schools, roads, housing, public transit, community-related facilities and Water for Life projects.

Expense is forecast to be $29.7 billion, a $1.4-billion increase from budget, primarily due to the increase in capital grants and disaster/emergency assistance for agriculture, floods, fires and mountain pine beetles.

Over $2.5 billion of the surplus has been allocated to savings, endowments and other funds including
$1.3 billion to the Heritage Fund, $250 million to the advanced education endowment, $500 million to the Alberta Cancer Prevention Legacy Fund and $200 million to the Energy Innovation Fund. The remainder of the surplus has been allocated to the Capital Account and the Sustainability Fund.