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Volatile financial markets and global economic uncertainty dampen Alberta's fiscal situation

Second quarter fiscal update signals challenges ahead as government plans for Budget 2012.

2011-12 Second Quarter Fiscal Highlights

  • Revenue forecast at $36.8 billion, up $1.2 billion from budget
  • Expense forecast at $39.9 billion, an increase of $860 million from budget, mainly for disasters and emergencies
  • Deficit forecast at $3.1 billion, a decrease of $341 million from budget
  • Sustainability Fund assets forecast at $8.1 billion at March 31, 2012, an increase of $2.8 billion from budget

Unprecedented market volatility, continued economic uncertainty in the U.S. and Europe and increased spending on natural disasters and core services like education to help reduce classroom size bring the forecast deficit close to the original budget.

“Despite the volatility in Europe and the U.S., Alberta remains in an enviable economic position,” said Finance Minister Ron Liepert. “Our decisions in the past to eliminate the debt and build a short-term savings account are paying off today — we are keeping taxes low and spending on services that Albertans have told us are their priority. That said, there will be tough choices ahead as we need to address the growing costs of core services like health care and education with the need to balance the budget and save for the future.”

Overall revenue is projected to be higher than budget mainly due to increasing land lease sales revenue, which is expected to be the highest in Alberta’s history. Corporate income tax revenue is also forecast to be higher than at budget. These increases are somewhat offset by decreases in forecast investment revenue, personal income tax, royalties and a higher exchange rate.

Expense is expected to be higher than budget mainly due to spending on disaster and emergency assistance, capital grants for schools and housing and increased funding for education.

“Global uncertainty underlines the need to make thoughtful and prudent choices for Budget 2012,” said President of Treasury Board and Enterprise Doug Horner. “While Alberta has weathered the storm well, we are not immune to the economic turmoil. We need to make decisions that will position this province for sustainable growth and long-term prosperity.”

The deficit will be offset by the Sustainability Fund, which holds Alberta’s short-term savings built up from past surpluses. The Sustainability Fund is used to help manage revenue volatility, protect priority programs and services and to build infrastructure while maintaining Alberta’s competitive tax system during economic downturns.

Summary ($ millions)

Budget 2011-12

2nd Quarter Forecast

Change from Budget

Revenue

$35,600

$36,801

$1,201

Non-Renewable Resource Revenue

$8,321

$10,135

$1,814

Total Expense

$38,994

$39,854

$860

Operating Expense

$33,943

$34,048

$105

Deficit

($3,394)

($3,053)

$341

Oil Price (WTI US$/bbl)

$89.40

$89.50

$0.10

Natural Gas Price (ARP - Cdn$/GJ)

$3.45

$3.30

($0.15)

Exchange Rate (US/Cdn)

98.38¢

$1.01

2.12¢

Heritage Fund 

The Alberta Heritage Savings Trust Fund investment income is forecast at $472 million for the fiscal year, $578 million lower than estimate in Budget 2011. The reduction is mainly due to weakened global financial markets. The Heritage Fund fair market value was $14.7 billion at September 30, 2011.

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Media inquiries may be directed to:

Robyn Cochrane, Director of Communications
Alberta Finance
780-427-5364
robyn.cochrane@gov.ab.ca

To call toll free within Alberta dial 310-0000.