Where the UCP got the money for a budget surplus

As I mentioned earlier week, the Alberta government recently released their last budget before this year’s provincial election. My first story on the budget reported that the UCP government plans to hire 7,600 public sector this year, assuming they even win the election.

For my second story on the budget, I wanted to review the revenue forecasts.

The Alberta government anticipated $70.653 billion in revenue in the new fiscal year. That’s $8.046 billion more than they had originally budgeted to spend in the current fiscal year but actually 146.678 million less than they are forecasting to spend by the end of the month..

Here’s how the revenue breaks down by source.

The largest portion of revenue is projected to come from personal income tax, which is just shy of 20%. This shouldn’t be that surprising. Personal income tax has made up the largest share of Alberta’s revenue stream for years.

The next largest is resource revenue from bitumen (also known as the tar sands or oil sands, depends on which propaganda you read), which came in at 17.8%. If you add in other resource revenue (such as natural gas, conventional oil, and coal), then resource revenue actually comes in at the highest share of the revenue, at 26.0%.

The third largest was money Alberta gets from the federal government, which was also 17.8%.

Resources revenue, personal income tax, and federal transfers account for 45.92% of Alberta’s projected revenue for 2023–2024.

All other revenue sources come in at less than 10% each.

Now let’s compare it to past budgets. First, here’s last year’s budget.

	2022–2023	2023–2024	Change
Personal income tax	$13,382	$14,069	$687
Corporate income tax	$4,040	$5,911	$1,871
Other tax revenue	$5,612	$5,012	-$600
Resource revenue – bitumen	$10,349	$12,555	$2,206
Resource revenue – other	$3,491	$5,806	$2,315
Federal transfers	$12,054	$12,552	$498
Investment income	$3,173	$3,154	-$19
Net income from business enterprises	$2,435	$2,727	$292
Premiums, fees, and licenses	$4,490	$5,040	$550
Other	$3,581	$3,827	$246

As you can see, the largest increase is from resource revenue. When we combine all resource revenue, we see an increase of just over $4.5 billion over the next year.

Here’s how it breaks down by type.

	2022–23 budget	2023–24 budget	Change
Bitumen royalty	$10,349	$12,555	$2,206
Crude oil royalty	$1,670	$2,905	$1,235
Natural gas & byproducts royalty	$1,458	$2,465	$1,007
Bonuses & sales of Crown leases	$236	$307	$71
Rentals and fees / coal royalty	$127	$129	$2
	$13,840	$18,361	$4,521

According to the budget, “non-renewable resource revenue is being driven by the current high oil and natural gas prices, elevated due to the uncertain global economic outlook and tight oil demand-supply balance, with the war in Ukraine, high inflation and interest rate hikes.”

However, the government is expecting prices to fall over the next budget year.

Not only that, but the royalty rate for bitumen is based on the WTI price expressed in Canadian dollars. That means when the Canadian dollar is low, the rate is higher, and as of this writing, the Canadian dollar was worth about 74¢ in US currency. The exchange rate is expected to rise slightly this year, by about 2¢, to 76.2¢, which will lower how much money we get from bitumen royalties will be lower.

Natural gas prices are also expected to drop this year, from $5.10 a gigajoule to $4.10.

As far as the $687 million increase in personal income tax goes, about half of it is because of adjustments.

“This requires a positive $338 million prior-years’ adjustment in 2022–23 to reverse understated revenue reported in 2020–21 and 2021–22 financial statements, and increases the base used to forecast future years.”

Fiscal Plan 2023–26, p. 66

The rest will be due to what the UCP claim as “improving employment, wages and household income growth”; although that will be modulated somewhat by the reindexing of exemption amounts to inflation and changes to charitable donations and adoption expense tax credits.

Corporate income tax revenues are the result of “attracted investment and spurred diversification in Alberta, as well as the fact that the “2023 global economic outlook has deteriorated”. While the relatively improved economy will result in higher revenue from taxing corporate profits, compared to last year’s budget, it’ll be lower revenue when compared to what the UCP are forecasting to actually bring in with last year’s budget as it wraps up with month.

Federal transfers are up by half a billion for a couple of reasons. There is a one-time $223 million top-up to the health transfer. However, this is offset in the year-over-year change by a one-time CHT top-up
of $232 million for surgery backlogs last year. Plus, all of these:

• $707 million: one-time Fiscal Stabilization payment, re-profiled from 2022-23, for the 2020-21 revenue decline relative to 2019-20, based on the program’s revised, but insufficient $170 per person cap
• $153 million: re-profiled infrastructure support
• $203 million: additional funding under the early learning child care agreements, primarily as the more recent agreement targeted to achieve $10-a-day child care ramps up

These are partly offset by a net $913 million in decreases, mainly from
transfers for site rehabilitation, municipal transit support, rapid test kits, and other COVID-19 transfers included in 2022-23 revenue but not continuing in 2023-24.

Here’s a breakdown of the federal transfers.

	2022–23 budget	2023–24 budget	Change
Canada Health Transfer	$5,352	$6,079	$727
Canada Social Transfer	$1,868	$1,942	$74
Transfers to SUCH sector	$579	$617	$38
Infrastructure support	$1,293	$935	-$358
Agriculture support programs	$296	$480	$184
Labour market agreements	$322	$325	$3
Early learning child care agreements	$734	$937	$203
Other transfers	$1,610	$1,237	-$373
	$12,054	$12,552	$498

now, let’s compare how income forecasted this year to revenue in the NDP’s final year:

	2018–19 actual	2023–24 budget	Change
Resource revenue	$5.43	$18.36	$12.93
Corporate income tax	$4.87	$5.91	$1.04
Federal transfers	$8.03	$12.55	$4.52
Personal income tax	$11.87	$14.07	$2.20
Investment income	$2.35	$3.15	$0.81
Bus. enterprises	$2.58	$2.73	$0.15
Premiums, fees & licences	$3.91	$5.04	$1.13
Other revenue	$3.75	$3.83	$0.08
Other tax revenue	$6.83	$5.01	-$1.82

It becomes quite clear here how the UCP government has been able to frame this budget so positively. The fact that fossil fuel revenue has increased by more than all the other revenue sources combined is like finding a pot of gold at the end of the rainbow: just pure luck.

This is unsustainable. At some point, Alberta is going to need to find dependable, stable revenue sources, so they can grow the province in responsible ways. Then it can use fossil fuel revenue for long-term solutions (like the Heritage Fund, for example).

Also, I find it interesting that over the last 4 years, somehow, Alberta has ended up with $4.5 billion more from the federal government than we got under the NDP yet continue complaining about how the federal government ignores us.