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Building Alberta: Budget 2013 delivers responsible change

Highlights:

  • No increase to operating expense ($36.4 billion - same as 2012-13 forecast)
  • No new taxes or tax rate increases
  • Bitumen bubble drops non-renewable resource revenue to $7.3 billion
  • $15 billion over three years for infrastructure projects
  • WTI oil forecast of $92.50, WCS forecast of $68.21
  • A new plan to set aside savings every year
  • Economic growth forecast of 2.9 per cent in 2013

Budget 2013 is a prudent fiscal plan that responds to the Bitumen Bubble while continuing to deliver the responsible change Albertans expect. The budget reflects the priorities Albertans told the government are most important: building Alberta by investing in families and communities, building our savings by ensuring government lives within its means and building new markets for Alberta’s resources - across Canada and around the world.

“Alberta is the greatest place in Canada to live - the reason why our population is growing by 100,000 people each year. But even Alberta is not immune from global economic challenges. Our budget thoughtfully responds to the effects of the Bitumen Bubble, while living within our means and continuing to build the schools, health centres and roads Alberta needs,” said Premier Alison Redford.

Budget 2013 will deliver on the Redford government’s priorities with an operational plan, a savings plan and a fully funded capital plan.  It does not introduce any new taxes or tax increases. 

“This budget is not just about this year, but about what we need to do as a province to prepare for 20 years from now when our population will be over five million people,” said Doug Horner, President of Treasury Board and Minister of Finance. “We need to spend smarter and focus on providing excellent public programs and services while expanding and maintaining our infrastructure for the future.  Budget 2013 is a big step in this direction.”

Operational Plan

Total revenues for 2013-14 are estimated at $38.6 billion, $5.4 billion lower than the Budget 2012 forecast.  Alberta’s bitumen continues to sell for a larger discount to North American and global benchmark oil prices, resulting from pipeline access issues and growing US oil supply.  This differential and the resulting reduction in bitumen royalties has led to an expected drop in resource revenue of $6.2 billion from the 2012 budget’s forecast for 2013-14. 

“The Bitumen Bubble continues to a have a severe impact on our revenues,” said Horner. “Budget 2013 delivers the tough, but thoughtful decisions necessary to adapt to our current reality.” 

The Budget 2013 outlook is prudent and in line with the averages of other forecasters for energy prices, exchange rates and other key variables.  The 2013 forecast price for conventional oil (West Texas Intermediate or WTI) is $92.50 a barrel and $68.21 a barrel for bitumen (Western Canada Select or WCS).

This fiscal year, spending on day-to-day programs and services for Albertans - our operating expense - is forecast at $36.4 billion, flat lined from the 2012-13 forecast.  This is well below the expected growth in population plus inflation rate of 4.3 per cent, and a significant drop from the average annual increase in operating expense of 7.3 per cent over the past 10 years.

Budget 2013 will see continued investment in core areas such as health and education, as well as maintaining support for municipalities and vulnerable Albertans. It will also support activities that will help Alberta build its economy and secure better market access and higher prices for its products.

The province is accelerating the results-based budgeting process to ensure programs are effective, efficient and achieving the outcomes Albertans expect.  All reviews are now expected to be complete by May 2014. 

An operational deficit of $451 million is expected for 2013-14, followed by surpluses of $1.5 billion and $3.3 billion for 2014-15 and 2015-16.  The 2013-14 deficit will be offset by a transfer from the Contingency Account, which replaces the Sustainability Fund, and has a primary purpose of short-term fiscal stabilization.

Savings Plan

Budget 2013 introduces an annual, legislated savings strategy for the province. Starting in 2014, a portion of non-renewable resource revenue will be taken off the top of total revenue and set aside into savings.  As well in 2014-15, the Alberta Heritage Savings Trust Fund will retain 30 per cent of its net investment income, which will grow to 100 per cent by 2016-17.

“Albertans told us we needed to save in good years and in bad,” said Horner.  “We are putting into law today that commitment, ensuring we’re providing for future generations.”

Under the new savings plan, the province’s total savings in various funds and endowments will grow to more than $24 billion over the next three years.

Capital Plan

The province will invest $15 billion into infrastructure projects over the next three years, including $5.2 billion in 2013-14.

In 2013-14, $4.3 billion of the capital plan (includes $1.1 billion borrowed in 2012-13) will be funded through direct borrowing in addition to continued use of public-private partnerships.  This approach leverages current low interest rates and the province’s AAA credit rating.  The portion of the capital plan financed by direct borrowing will be continuously evaluated and is expected to decline over time.

“Albertans have been clear that they want us to continue investing in infrastructure,” said Horner. “They have also told us they are comfortable with financing these long term assets as long as it makes financial sense, there is a hard cap in place and we have a plan to pay it back.”

Budget 2013 lays out a clear debt management plan that includes setting aside funds every year for future repayment. This ensures that as infrastructure is built and enjoyed by Albertans today, they will be paying a portion of the total cost.  A hard cap on the cost of capital borrowing is in place that limits debt servicing costs to three per cent of a three-year average of annual operational revenues. Borrowing for operating expenses continues to be prohibited. 

Fiscal Plan Summary (millions of dollars)


OPERATIONAL PLAN

2012-13 Forecast

2013-14 Estimate

2014-15 Target

2015-16 Target

Operational revenue

37,019

37,555

40,248

42,873

Total operational expense

38,431

38,006

38,768

39,581

Operational surplus/deficit

(1,412)

(451)

1,480

3,292

CAPITAL PLAN

Capital plan spending

5,454

5,209

5,172

4,660

SAVINGS PLAN

Contingency Account
(previously the Sustainability Fund)

2,744

691

1,386

4,535

Heritage Savings Trust Fund

14,872

15,169

15,548

16,199

Other funds and endowments

3,352

3,390

3,343

3,477

Total savings (at year end)

20,968

19,250

20,367

24,211

Click here for the full fiscal plan summary table

Energy and economic assumptions

 

2012-13 Forecast

2013-14 Estimate

2014-15 Target

2015-16 Target

WTI Oil (US$/bbl)

92.58

92.50

95.00

92.00

WCS@Hardisty (Cdn$/bbl)

68.91

68.21

74.85

75.74

Differential (WCS/WTI in Cdn$)

26%

27%

22%

19%

Natural gas (Cdn$/GJ)

2.26

3.07

3.55

3.70

Exchange Rate (US cent/Cdn$)

100.0

99.0

99.0

99.0

Backgrounder: Budget 2013 economic and energy forecast details

Media inquiries may be directed to:
Robyn Cochrane
Press Secretary
Treasury Board and Finance
780-415-1541
780-668-2256 (cell)
robyn.cochrane@gov.ab.ca

To call toll free within Alberta dial 310-0000.

 

Backgrounder

Budget 2013 economic forecast

Key energy and economic forecasts for 2013-14 include:

  • Crude oil prices (WTI) are forecast to be US$92.50 for 2013-14 with the natural gas price increasing from Cdn$2.26/GJ in 2012-13 to Cdn$3.07/GJ.
  • It is estimated Alberta will produce more than 2.1 million barrels per day of raw bitumen in 2013-14.
  • The WCS is forecast to be Cdn$68.21per barrel with the differential (WCS/WTI in Canadian dollars) forecast to be 27% in 2013-14.
  • The Canada/U.S. exchange rate is expected to average 99 cents over the next fiscal year.
  • Economic growth is expected to be 2.9% in 2013-14 - a sustainable and healthy rate of growth for a developed economy like Alberta’s.
  • Alberta’s strong economy is attracting new residents, with a forecast of 68,000 more people arriving in 2013 than leaving. Total population growth is expected to be close to 100,000 people in 2013.
  • Alberta will continue to have one of the lowest unemployment rates in the country - 4.5% in 2013.

Alberta’s forecasting model is based on all major aspects of economic activity. It is updated with the latest provincial data each year and is adjusted regularly to capture structural changes in the economy. Variables outside the model such as population are captured using existing information sources. The province’s forecasting process involves several government ministries, as well as consultation with specialized financial institutions and other provinces. The objective is to generate a forecast that reflects the most likely outcome - one with an equal chance of a positive or negative error.

As consultation is a critical part of the forecasting process, the Alberta government will hold its first energy and economic forecasting summit this summer. It will bring together experts from around the world to explore and share best practices and new ideas.

Government’s forecast for oil prices is based on an average of private sector forecasts early in the year. In Budget 2012, the government’s forecast for 2012 was slightly lower than those of the private sector, other provinces and the federal government. In Budget 2013, the government’s forecasted oil price for 2013 and 2014 is responsible and below the average forecast of private sector experts.

Oil Price Benchmark
West Texas Intermediate (US$/bbl)

 

 Budget 2012 forecast for 2012

Budget 2013 forecast for 2013

Budget 2013 forecast for 2014

National forecasting agencies

 

 

 

Conference Board of Canada
IHS Global Insight
Centre for Spatial Economics

99.64
91.00
91.00

89.83
89.64
97.00

97.49
86.26
102.93

Banks and investment dealers

 

 

 

BMO Capital Markets
Credit Suisse
Deutsche Bank
CIBC Capital Markets
Goldman Sachs
JP Morgan
Peters & Co. Limited
RBC Capital Markets
Scotiabank
Toronto Dominion Bank

95.00
99.00
105.00
92.00
120.00
107.00
102.20
100.00
100.00
95.00

94.00
102.75
96.25
98.00
97.00
99.00
94.20
91.00
94.00
94.00

99.00
102.00
103.25
100.00
95.00
115.00
92.73
96.00
96.00
95.00

Industry analysts

 

 

 

U.S. Energy Information Administration
GLJ Petroleum Consultants 
Sproule Associates Limited

100.25
97.00
98.07

89.54
90.00
89.63

91.00
92.50
89.93

Confidential forecasts

 

 

 

Average

99.71

94.65

94.12

High
Low
Average of all private forecasts
Alberta government (calendar year)
Alberta government (fiscal year)

120.00
91.00
99.38
98.71
92.58

104.75
87.25
94.28
94.05
92.50

115.00
84.25
96.31
93.64
95.00

Light-heavy oil price differential

 

2013

2014

2015

Average of all private forecasts

27%

23%

19%

Alberta government (calendar year)

29%

24%

19%

The government surveyed the following companies on their forecast of the light/heavy differential: PIRA Energy Group, KBC Advanced Technologies, IHS Cera, Purvin & Gertz Inc, Peters & Co Ltd, CIBC World Markets, Sproule Associates Ltd, GLJ Petroleum Consultants.

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Media inquiries may be directed to:
Robyn Cochrane
Press Secretary
Treasury Board and Finance
780-415-1541
780-668-2256 (cell)
robyn.cochrane@gov.ab.ca

To call toll free within Alberta dial 310-0000.


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