Province expecting higher budget surplus

Posted on December 27, 2023 by Taber Times

By Al Beeber
Southern Alberta Newspapers

The Alberta government is projecting a surplus of $5.5 billion in the 2023-24 fiscal year, an increase from $3.2 billion which was forecast in this year’s budget.

The government also says the province’s finances and economic outlook remain strong, although risks do persist.

This is among information provided to media before President of Treasury Board and Minister of Finance Nate Horner publicly released the government’s mid-year fiscal update.

In its update, the province says that “continued fiscal prudence will be necessary in order to prevent rising debt servicing costs from crowding out other spending priorities over time.”

The province also says starting next year, it will also continue to offer residents fuel tax relief when oil prices are high “even as the province transitions back to the original fuel tax relief program, which is based on average quarterly oil prices.”

This means Albertans will see savings on the provincial fuel tax when oil prices are $80 per barrel or higher during each quarter’s review period. Drivers will continue to save a minimum of four cents per litre on the fuel tax from January through the end of March in 2024 as the fuel tax is phased in again.

The province says residential construction is starting to respond to low inventories “after being weighed down by high interest rates, labour shortages and elevated costs in the construction sector.”

Housing starts have increased, averaging at an annualized pace of more than 42,000 units in the last four months to October. The growth has primarily been driven by a surge in starts of apartments.

Housing construction hasn’t kept up with the pace of population growth with 33,300 units started between July 1 of 2022 and 2023 even though the population grew substantially more.

“The catch-up in supply will buoy housing starts in the next few years,” says the update.

The Gross Domestic Product this year is expected to grow 2.8 per cent which the province says is in line with the budget forecast and the province says Alberta is expected to lead Canada in economic growth, as well.

The province’s forecasted debt repayment for 2023-24 is $3.2 billion while the forecasted Alberta Fund allocation is $1.6 billion.

The province says Alberta’s fiscal situation has improved “in the near term” since the 2023 budget was released.

The update notes while the economic forecast for the province remains strong, “uncertainty about global economic conditions remain a risk to the forecast.”

“Alberta’s economy is resilient, and our finances are on track,” Horner told reporters.

“Our energy sector continues to be a driver of jobs and activity, and at the same time we’re seeing growth and diversification in emerging sectors like tech and aviation.”

He added: “We’re aware of the many challenges the current global economy presents. Rising costs, higher interest rates and general economic uncertainty are weighing on businesses and consumers.

“We’re not immune to these challenges, but we’re in a strong position to weather them,” said Horner.

The province expects budget surpluses to be lower in 2024-25 – $2.1 billion and in 2025-26 – $2.8 billion. These figures respectively are $0.1 billion and $1.4 billion higher than forecast in the 2023 budget.

The province says revenue for 2023-24 is forecast to be $74.3 billion, a figure which is $3.7 billion higher than predicted in the budget, which media were told is due mainly to revenue from non-renewable resources and income taxes.

Oil prices are expected to soften over the next three years with the price of West Texas Intermediate oil predicted to average $79 in 2023-24.

Total expenses for the province have increased by $500 million since the 2023 budget was released “with another $1.4 billion of increases offset by the contingency,” says a provincial report. A contingency of $1.5 billion was included in the 2023 budget.

The province experienced what it calls significant expense increases which include $1.2 billion in disaster relief and emergency assistance costs which were primarily caused by this year’s wildfire season and support to livestock producers who faced “extraordinary” costs due to dry conditions. Other factors included additional health spending and enrolment costs in education.

The province expects increases in expenses of $1.3 billion in 2024-25 and $900 million in 2025-26.

Taxpayer supported debt is estimated to be $76.1 billion as of March 31 of 2024, which is $1.7 billion less than forecast in this year’s budget.

Personal and corporate income tax revenue this year is forecast to be $21.8 billion which is $1.8 higher than the figure contained in the budget.

Bitumen royalties are forecast to be $14.4 billion which is an increase of nearly $2 billion ($1.8 billion) from the budget.

The province says the Heritage Savings Trust Fund as of Sept. 30 was worth $21.4 billion, up $200 million from March 31. It had a return of 0.9 per cent for the first six months of the 2023-24 fiscal year. Because of interest pressures, while the fund over a five-year period ending Sept. 30 has outperformed by 0.5 per cent its passive benchmark, that 5.9 per cent figure is below the long-term real return target of 6.9 per cent.

The update says population growth remains robust although it’s expected to moderate from 2022’s pace.

“Strong momentum in the second quarter of the year propelled Alberta’s population to expand by 184,000 or 4.1 per cent in the 2023 census year, the fastest annual growth rate since 1981,” says the update.

The population is expected to increase 2.9 per cent in the 2024 census year which is higher than forecast in the budget.

The province says job prospects remain strong even though the labour market is slowing. In the first 10 months of 2023, 78,000 jobs were created with growth expected to be 3.3 per cent. That pace is expected to slow slightly next year with job vacancies remaining elevated.

While inflation has moderated, the exception is for prices of shelter and food which is contributing to a 9.9 per cent increase in rents – the fastest growth since December 1982.

Opposition NDP finance critic Samir Kayande says Alberta’s good fortune is cold comfort to those not sharing in it.

“It is in fact the actions of this government that see Albertans continue to struggle with their basic needs despite high resource revenues and the provincial surplus,” Kayande told reporters.

“Alberta has had the lowest wage growth at several points under the UCP, and pay here has been massively outpaced by inflation.

“The UCP is making false promises, touting increased levels of migration while refusing to acknowledge that those who answered their call likely won’t be able to afford a place to live, keep up with the cost of their basic needs, or access public services in a timely way.”