MLA Bikman weary of numbers in fiscal update

Posted on September 4, 2013 by Taber Times

An oily windfall has unexpectedly boosted revenues and put a more rosy hue on the numbers, but the provincial government was still stressing the need for fiscal prudence throughout 2013 in the first quarter fiscal update released last week.

According to government figures, operational revenue in the first three months of the fiscal year was $9.9 billion, $211 million higher than expected, due primarily to an increase in oil prices and investment income.

Operational expense was $9.2 billion, a decrease of $113 million, due mainly to the timing of health grants. Figures also showed a $715 million operational surplus in the first quarter.

“Our first quarter actually shows that operational revenue was higher than we expected, thanks to higher energy prices in the first three months of the fiscal year,” said Finance Minister Doug Horner.

“Our actual operating expense was less than we forecast, due mainly to the timing of some of the health grants. This was also offset by the provision of in-year disaster emergency assistance, but only a portion of that includes southern Alberta flooding.”

Cardston-Taber-Warner MLA Gary Bikman questioned the government’s claim of an operational surplus.

“I think it (fiscal update) shows that the economy is strengthening. High revenues are, of course, a plus. But they don’t reflect that the government has done anything to take advantage of that. For example, the province in Q1 borrowed $500 million, and the Sustainability Fund is down $300 million — any talk of an operational surplus is disingenuous, to say the least.”  

Capital plan results were on track with budget estimates, with capital plan spending at $1.4 billion. Direct borrowing for the capital plan was $304 million lower than expected, coming in at $494 million.

“Overall, the capital plan was nearly bang on relative to the Budget 2013 three-month estimate,” said Horner. “At first quarter, we estimated that by the end of this fiscal year operational results would be closer to being balanced, ranging from a surplus of $250 million to a deficit of $500 million. As I cautioned at last year’s first quarter, this is a snapshot of what things look like at the end of June of this year. We still have a long year ahead of us, and any number of factors could change things — the flood of course has been a great example of this.” Bikman called the provincial government’s accounting practices a “shell game,” while targeting criticism at a perceived failure to address unsound fiscal policies.

“We see overall that the PC government is still unable or unwilling to prioritize spending, and is burying the province in debt, and continuing with a structural deficit. We know higher oil prices aren’t likely to stay forever, they don’t have a clear plan in place for the flood damage, and they aren’t cutting back on the things that we proposed in our Wildrose Financial Recovery Plan. We proposed getting the budget back in the black by ending corporate welfare, freezing wages particularly at the top, and reducing the size of government and working on public pension reform. We don’t see those things being addressed. Even the auditor general can’t make sense of the new way that they’re reporting this, the way they set things up with operational versus infrastructure spending. It’s just confusing, and it’s misleading. It’s a shell game.”

By the end of the 2013/14 fiscal year, operational results are expected to be closer to balanced, ranging from a surplus of $250 million to a deficit of $500 million.

“It’s important to note that Alberta is the only province, and continues to be, that’s in a positive net asset position. We have an actual number from our year end report — we’re $1 billion higher than what we thought it was going to be at budget time. We expect an improvement over this fiscal year as well, given the first quarter results, and we’re pleased to say we are moving in the right direction,” said Horner.

To date, $704 million has been allocated to support Albertans, small-business owners and communities with flood recovery.

“This was an unprecedented disaster, and it comes with a very high price tag,” said Horner. “Right now, our estimates show that we’re dealing with about a $5 billion event. That’s just the latest estimate — claims are being processed and that number is evolving. While the provincial government will share the cost of recovery with the federal government, municipalities, and insurance claims, Alberta will most certainly feel the financial impact.”

Bikman pointed to a need for a clear flood recovery plan on the part of the government, and pressed for more detailed information with regard to final costs.

“They haven’t been very specific. We know that they’re proposing the cost could be as high as $5 billion. That’s split between insurance companies and the federal government, province and municipalities. There’s some guesses that the feds might cover $1.5 billion to $3 billion, and leaving the province on the hook for maybe $1 billion to $2 billion. I may not be overall as costly to the province as was originally thought with the $5 billion number being thrown out by the premier a week or so ago. We still don’t have any specifics — they’re not telling us what they’re spending it on, there’s no plan to spend most of that money this year, in terms of preventative things that are so desperately needed to be done.”

Although careful not to characterize the flood disaster as positively in terms of economic growth, Horner did note it will have an expected impact on the province’s GDP.

“The flood has had a massive impact on many people, and we’re also seeing repercussions for our economy. In terms of our GDP, the flood will actually have a positive effect. Reconstruction efforts to replace or repair damaged property are estimated to add 0.2 percentage points to growth in 2013 and 0.4 percentage points in 2014. That doesn’t mean that the flood was good for our economy — there are many economic impacts that aren’t reflected in the GDP. Flood-related spending will put pressure on prices related to reconstruction, and increased construction activity will see a rise in prices for those materials and labour. It also means increases in weekly wages, and may further stretch an already tight labour market.”

While a boost to non-renewable resource revenue is a welcome addition to the province’s coffers, Horner was quick to point out that the province is still focused on finding new shipping alternatives for Alberta’s oil.

“First quarter operational revenue was up thanks to rising energy prices. Our bitumen bubble has taken a bit of holiday, but we’re pretty certain, that like a bad penny, it’s going to return. The issue for next year is really about increased production and Alberta’s limited access to markets. That’s why Keystone and the new east coast pipeline are critical to Alberta’s future. We expect some of this pressure to be alleviated by rail, as it has been, but the system is still expected to be quite constrained. Unfortunately, we expect to see the return of that bitumen bubble, and the challenges that it brings. We have been on this roller coaster for far too long to base out long-term planning on high energy prices. That’s why our new energy forecasts are not as high as the energy prices today.”

Hailing the first quarter fiscal results and a boost in non-renewable resource revenue as a vindication of the province’s sound leadership is a mistake, according to Bikman.

“Certainly it’s a cause for general celebration, but for them to take credit for it because it makes their numbers look a little better. We’re still living on non-renewable resource revenue instead of banking a significant portion of that. I just think that’s false economy — it ignores some realities. We shouldn’t be so reliant on non-renewable energy revenue. I think we need to be living within our means. They still don’t show any inclination to do that. It still seems to me they’re trying to buy votes, and trying to buy popularity with our money. It’s just delaying the inevitable. You can’t keep spending more than you’re getting and expect that some future generation — my children or your children — someday the debt will come due. There doesn’t seem to be an acceptance of that reality, or any acknowledgement of it.”

GDP growth is expected to strongly exceed predictions from Budget 2013, according to Horner.

“Alberta’s economy remains strong, after beating all provinces in real GDP and economic employment growth in each of the last two years, we’re on track to post another solid gain in 2013. Real GDP is forecast to expand by 3.1 per cent, that’s higher than the 2.1 per cent that was forecast at budget, and that’s a result of increased economic activity due to reconstruction efforts following the flooding.”

New estimates indicate Alberta’s population will likely come close to topping five million by 2030.

“Our population continues to grow — it’s expected we will reach more than five million people in less than two decades,” said Horner. “We’re already on track to reach four million people this year. Our economy is also benefitting from stronger prices. All of this good news translates into a stronger Alberta economy and higher than forecast resource revenues, but we approach this good news with caution — Alberta is all too familiar with the volatility of the energy market. Forecasting in the face of these volatile energy prices is a challenge to say the least. We’re going to be cautious when it comes to energy prices. Given this reality, and the fact that we’ve made a commitment to Albertans to live within our means, we will be holding the line when it comes to spending, other than for flood recovery and other disasters.”