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Historically low oil prices and declining revenue impacting third quarter results

Alberta faces a significant budget shortfall as oil prices continue to collapse – to the lowest levels in more than a decade – causing a substantial hit to government revenue.

The oil price collapse has significantly impacted Alberta’s resource and personal income tax revenue streams. Prudent financial management, including the re-profiling of some projects and bringing expenses in line with the province’s new economic reality, has helped the province mitigate some of the effects of the oil price shock this fiscal year.

“This is a once-in-a-generation economic challenge. As such, we are committed more than ever to prudent fiscal management, creating jobs and diversifying the economy. This includes protecting services Albertans need, putting people back to work with an expanded infrastructure program, and promoting home-grown business and entrepreneurship.”

Joe Ceci, President of Treasury Board and Finance Minister

Total revenue for 2015-16 is forecast to be $43.1 billion. This is $660 million lower than estimated in Budget 2015, due primarily to a reduction of $762 million in personal income tax revenue and a $294 million net decrease to resource revenue. Total expense is forecast to be $49.4 billion – $463 million lower than anticipated at budget.

Alberta’s operating expense is estimated to be $43.2 billion. This reflects government’s commitment to stabilize public services, including funding K-12 enrolment growth and Alberta Health Services operations. Total expenses are reduced as a result of lower than budgeted costs for disaster/emergency assistance, re-profiling of capital grants, and suspending Access to the Future Fund grants, among other measures. Pension provisions have also dropped $202 million from what was estimated, in part due to strong investment returns.

Alberta’s revised Economic Outlook estimates the province’s economy will contract by 1.1 per cent in real GDP in 2016, after a decline in real GDP of 1.5 per cent in 2015. Energy investment is expected to decrease by 22 per cent in 2016. Continued government infrastructure investment is expected to boost construction.

“While we have the strongest balance sheet in the country, we are not immune to global economic activity. Government is investing in building projects to keep Albertans working, help fill our infrastructure deficit and take advantage of market conditions while labour is available.”

Joe Ceci, President of Treasury Board and Finance Minister

The low Canadian dollar will help Alberta’s exports, as will expanding oil sands production. Annual employment is forecast to decline by 1.5 per cent in 2016. This will affect average weekly earnings, which is estimated to fall by 0.8 per cent in 2016.

2015-16 Third Quarter forecast ($ millions)

 

Budget 2015

Q3 forecast

Change from Budget

Income Taxes (personal and corporate)

$16,792

$16,257

(535)

Non-renewable resource revenue

$2,768

2,474

(294)

Total Revenue

$43,788

43,128

(660)

Operating Expense

$43,209

43,244

35

Disaster/Emergency Assistance Expense

829

647

(182)

Total Expense

49,906

49,443

(463)

Deficit

(6,118)

(6,315)

(197)

Balance sheet

Fiscal year-end forecast at Budget

Fiscal year-end forecast at Q3

Change from Budget

Contingency Account

$3,289

$3,869

+580

Liabilities for Capital Projects

$17,995

$17,995

0

Energy and Economic Assumptions

Budget 2015

Q3

Change

WTI (US$/bbl)

50.00

45.00

-5.00

Exchange Rate (US¢/Cdn$)

78.0¢

76.0¢

-2.0

 

 

 

 

 

Budget 2015

Q3

Change

Real GDP Growth

 

 

 

2015

-1.0%

-1.5%

-0.5 p.p.

2016

0.9%

-1.1%

-2.2 p.p.

Unemployment Rate

 

 

 

2015

5.8%

6.0%

0.2 p.p.

2016

6.2%

7.4%

1.2 p.p.

p.p. percentage points


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