Alberta’s resource revenues could be considerably higher than budgeted, BMO Nesbitt Burns Inc. says in an analysis Wednesday.
Commenting on the Alberta budget brought down Tuesday, BMO notes that the province’s finances are subject to a great deal of volatility because of resource prices. As a result, it has announced it is creating a Sustainability Fund to help reduce the variability of resource revenues.
“Essentially, if resource revenues exceed $3.5 billion, the excess will be put into the fund, and if revenues fall short then money will be taken out to cover the shortfall,” says BMO analyst Ryan McGaw. “In FY03/04, Alberta plans to put $1.3 billion in the fund. However, their oil and gas price forecasts are conservative. Using BMO Nesbitt Burns’ energy price forecasts and the province’s sensitivity analysis, resource revenues could be as much as $2 billion higher than budgeted.”
BMO says the province’s financial position continues to strengthen — this is its 10th consecutive balanced budget — allowing Alberta to implement plans that were delayed in light of the soft economy and falling energy prices at the end of 2001 and in early 2002.
Finance Minister Patricia Nelson projected a $268 million surplus for FY03/04, although BMO says that this understates the strength, as $1.3 billion will be set aside in the new Alberta Sustainability Fund. Last year’s surplus, which was forecast to be $724 million a year ago, is now expected to hit $1.8 billion.
Meanwhile, corporate income taxes were cut to 12.5% from 13% on April 1, 2003, which brings the rate in line with Ontario. As well, small businesses will see their rate cut 0.5 points to 4%, and the threshold increased to $400,000. These cuts will amount to savings of $94 million for businesses in FY03/04,” BMO reports.
Health care is getting most of the attention on the spending side. Alberta Health and Wellness will spend an additional 7.2% in FY03/04 (or $492 million). Another $700 million will be spent on health facilities over the next three years. And, education and agriculture also get additional funding. “Overall expenditures will increase only modestly, as $1.5 billion was spent on emergencies and disasters in FY02/03,” McGaw says.
Accumulated debt is expected to hold steady at $4.8 billion (or 2.9% of GDP) this year. The province’s GDP growth forecasts of 3.6% in 2003 and 2004 are consistent with BMO’s forecasts.