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Tom Monto

Alberta 2024-5 budget shows not a surplus at all - and no real savings

In late February 2024, the Alberta government is reporting on the previous years cash flow and also making predictions on the coming year (the 2024-5 budget). But the reportage appears to be confusing the two things.

(Why does the article online talk of last November's fiscal update when the article is discussing the 2024-5 budget?)


Alberta is claiming a $300M surplus but actually because it is borrowing $2.4B it is actually running a deficit.

And that is due to the province having one of the lowest income tax rates in the country.


and although Danielle Smith is saying she wants to save money, she is "saving" - depositing in the Alberta Heritage Savings Trust Fund - about exactly the same amount of money that she is borrowing. So there is no savings.


Meanwhile Alberta is in debt $76B and Smith's governmment is paying down just $4B of that.


Here's what an article reports:

"while officials say the province is in a negative cash position, it's technically not running a deficit. It is, however, borrowing $2.4 billion to balance the budget..."


any government that does not have enough money coming in to cover its costs borrows. Borrowing money does not prevent a deficit - it is what is necessary when you run a deficit (unless a govenrment just does not pay its bills, which governments do not want to do.)


Whether money is spent on capital projects or on annual funding of programs, that expenditure is part of the budget and if the budget shows not enough money coming in to cover the expenditure, then it is a deficit budget, not a balanced or surplus budget.


The article allows the government to define its own terms.


it says

"Horner [Alberta Finance Minister] said the "easiest way" to explain why the government is borrowing money to cover the budget while reporting a surplus is "that we're choosing to, somewhat."

"We could have left the retained earnings in the Heritage Fund and had those in general revenue, then we probably wouldn't have been in a position where we would've chosen to make that deposit because things are so tight," he said.

"We're making the choice to leave it there, and it causes us to need the cash at the end of the year for our cash position."


so the government does not have enough revenue to cover putting savings in the Heritage Savings Trust Fund and to pay its bills, so is borrowing money in order to save. And then is saying that because it decided is "save" money, it is not really borrowing because it did not need the money to pay its bills.


Meanwhile it is taking credit for saving money (putting money in the Heritage Savings Trust Fund) when it actually borrowed money to cover that saving.


The Minister goes on to say

"If I'd ask Albertans to think of it that way, it's about choices we're making between debt they're willing to take on and savings that they want to make probably because they see that value in the returns and the long-term vision.

"I imagine there are Albertans that have savings that could eliminate all their debt, but they choose not to because the savings have that value for them and they know what that will mean in the future."


I am sure there are Albertans who have loans out from banks who also have savings. But it makes no financial sense for them or for the government - interest on loans is much more than interest accrued from savings. I would say to those individual Albertans who do this that they are just as poor at money management as the government itself.


The article reports:

"The finance ministry forecasts surpluses of $1.4 billion for 2024-25 and $2.6 billion in 2025-26."

I wonder how much will have to be borrowed to produce that surplus?


so if we look just at the 2024-5 budget, we see

"Total revenue in 2024-25 is forecast at $73.5 billion, a decrease of $2.1 billion from the 2023-24 third quarter forecast of $75.6 billion. The decrease comes mainly from a $2.1 billion drop in resource revenue driven by an anticipated decline in oil prices, and a $1.2 billion decrease in investment income, as uncertainty in the global economic outlook impacts future investment performance expectations."

from Alberta Government website https://open.alberta.ca/publications/budget-2024


Government expects to bring in less money next year than the last year and spend a bit less but does not have any extra money to have any savings or to pay down the debt.


what happened 2023-24 (estimated)* 2024-5 estimate ("the budget")

Revenue

resource revenue 19.4B 17.3B

federal transfers 12.7B 12.6B

"other revenue" (borrowing?) 4.3B 4.2B*

all other revenue 39.12B 39.4B

total revenue 75.6B 73.5B


And note the large amount of federal transfers shows that Alberta does indeed receive moey from Ottawa. it is not totally cut off from federal funds even if it does not get any money back through the equalization program.


* reportage says government is borrowing $2.4B to balance its books (or set to do that next year?). This may be included in the $4.2B, or is the reportage confusing report of last year's finances with the 2024-5 budget?)


Expenditures

annual funding (operating expense) 57.9B 60.1B

capital grants 2.4B 3.5B***

other expenditures 10B? 10B?

savings added to HSTF 0? 2.4B**

total expenditures 70.3B 73.1B


Surplus 5.3B .4B


*"2023-4 forecast"


** from the reporting it is not clear if the $2.4B put in the HSTF is recorded as an expenditure, or is covered by some sort of borrowing on the side.


*** reportage says Alberta is to spend $25B on captial projecs but this is not accounted for. Either it is to be spent over a number of years or some mistake is made somewhere.


Alberta often looks to Norway as an inspiration.

But there the budget is much different -

oil revenue is not used to cover operating expenses or capital projects but all or the great bulk of it is put into savings.

the government is not in debt

the government does not run deficits but covers its expenses by the money it raises from non-resource revenue sources (income taxes, etc.)


The Alberta situation is much different:

the government does not raise enough money from its taxes to cover its expenses


Alberta prides itself on its low tax rate which is set to be even further lowered next year. Such a cut in tax rate will mean the govenrment next year will be even less able to cover its spending and save money without borrowing. Meantime its spending on health and educaiton is falling behind - the government is not keeping pace with population growth and inflation if you look at it per capita. (I am fuzzy on this but believe it to be true.)


the Alberta government uses all of its resource revenue each year to cover its expenses and is borrowing money to "save" money in the Heritage Savings Trust Fund.


The Alberta government owes $76B so if you compare that to the HSTF, you see that Alberta is in debt about $50B.

This is totally different from the Norway situation where the government there has $1,400B literally saved up in its sovereign wealth fund.




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