As I mentioned last week, the Alberta government recently released their last budget before next year’s provincial election. My first story on the budget reported that the UCP government laid off nearly 900 public sector over the last 4 years.
For my second story on the budget, I wanted to review the revenue forecasts.
The Alberta government anticipated $62.607 billion in revenue in the new fiscal year. That’s $915 million more than they are forecasting to spend in the current fiscal year but $18.910 billion more than they had budgeted at the start of the 2021–2022 fiscal year.
Here’s how the revenue breaks down by source.
The largest portion of revenue is projected to come from personal income tax. 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 was money Alberta gets from the federal government. Both personal income tax revenue and federal transfers make up roughly 20% each.
The third 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 16.5%. 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 22.1%.
Resources revenue, personal income tax, and federal transfers account for 62.8% of Alberta’s projected revenue for 2022–2023.
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.
|2021–22 budget||2022–23 budget||Change|
|Corporate income tax||$1.891||$4.040||$2.149|
|Personal income tax||$11.647||$13.382||$1.735|
|Premiums, fees & licences||$4.133||$4.490||$0.357|
|Other tax revenue||$5.527||$5.612||$0.085|
As you can see, the largest increase is from resource revenue. When we combine all resource revenue, we see an increase of nearly $11 billion over the next year.
Here’s how it breaks down by type.
|2021–22 budget||2022–23 budget||Change|
|Crude oil royalty||$0.627||$1.670||$1.043|
|Natural gas & by-products royalty||$0.467||$1.458||$0.991|
|Bonuses & sales of Crown leases||$0.151||$0.236||$0.085|
|Rentals & fees / coal royalty||$0.128||$0.127||-$0.001|
The UCP government is predicting that bitumen royalty revenue will increase 6 times over what it was last year.
That’s because the price of oil has increased by more than $20 a barrel over the last year. When the UCP released last year’s budget, they forecasted that West Texas Intermediate would be US$46 a barrel. This year, they’re predicting US$70 a barrel.
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 78¢ in US currency.
The interesting thing about projecting oil prices at US$74 a barrel is that oil is at US$92 as I write this story, and it’s been climbing since December.
If that trend continues, I predict that the UCP government will declare even larger surpluses during its fiscal updates in August and November. And having higher-than-predicted surpluses will be a handy thing to have leading into the next provincial election. Perfect timing!
Natural gas prices are also higher this year, although not as dramatically as oil prices. This time last year, the UCP predicted natural gas would be at C$2.60 a gigajoule. Now, they’re predicting $3.20 a gigajoule for their new budget.
And before anyone says it’s because we have record production, keep in mind that conventional oil production is projected at a 7.56% increase, bitumen at 2.94% more, and natural gas at 5.02%. It’s definitely mostly the increase in price.
The $2.149 billion increase in corporate income tax revenue is driven primarily by corporate profits growing by 147% last year, compared to 2020, when profits collapsed by 63%. That growth is mainly recovery growth, not because of UCP policy. The fact that profit growth for this year will drop to only 31% is evidence of that.
As far as the $1.614 billion increase in personal income tax goes, the UCP government claims it’s because of the labour market returning to pre-pandemic levels of people working, as well as growth in the population and household income since last year.
That’s not the only reason, however. Buried on page 103 of the budget is an interesting tidbit regarding this year’s personal income tax revenue.
According to this budget, the UCP government underreported personal income tax income in their first two budgets, which came to light when they were audited recently.
Those two budgets have since been adjusted to include an additional $717 million combined.
Federal transfers are up by $1.873 billion for a couple of reasons. There is a one time $465 million supplement to the health transfer, as well as a $117 million adjustment to the base health transfer. Plus, all of these:
- $500 million: infrastructure support and site rehabilitation re-profiling
- $293 million: agriculture drought assistance
- $244 million: municipal infrastructure
- $191 million: child care funding
- $116 million: immunization
- $91 million: Safe Return to Class
- $65 million: job support programs
- Unspecified: flood support and fighting mountain pine beetle infestations
Here’s how income forecasted this year compares to revenue in the NDP’s final year:
|2018–19 (actual)||2022–23 budget||Change|
|Corporate income tax||$4.871||$4.040||-$0.831|
|Personal income tax||$11.874||$13.382||$1.508|
|Premiums, fees & licences||$3.911||$4.490||$0.579|
|Other tax revenue||$6.833||$5.612||-$1.221|
I find it interesting that over the last 4 years, somehow, Alberta has ended up with $4 billion a year more from the federal government than we got under the NDP yet continue complaining about how the federal government ignores us.
It’s no surprise that royalty revenue is up in the UCP’s final year, compared to the NDP’s final year. Oil itself was trading below US$50 a barrel for WTI during the 2019 provincial election, and the closing price never topped US$60 once during 2018.
Personal income tax going up isn’t a surprise either. There are more people working in Alberta and median income has increased. Plus, the UCP deindexed basic exemptions amounts, which meant an increase of hundreds of millions of dollars in personal income tax revenue over the last couple of years.
One thing I did find interesting was the UCP is projecting nearly $1 billion less in corporate income tax revenue in their final year than the NDP took in in their final year.
I find it interesting because Travis Toews, Alberta’s finance minister, claimed in his speech introducing the budget that “we will collect roughly $400 million more in annual corporate tax revenue at an 8% rate than the previous government did at 12%.”
I’m not sure where he gets that figure from, when it’s pretty clear that this new budget has $831 million less in corporate income tax revenue than the NDP collected.
There is one other revenue source I wanted to highlight: tuition.
The UCP government predicts collecting $1.645 billion in postsecondary tuition this year. Last year, they had budgeted $1.475 billion. In the NDP’s last budget, the provincial government collected $1.256 billion.
That means that the government plans to bring in $170 million more in tuition this year than last year and $389 million more than the year before they took power.
That might seem like a good thing. Unless you consider that they plan to hire 0 new postsecondary employees this year and have laid off nearly 1,500 over the last 3 years.