treasury board ministry 1 government controllership challenges in alberta’s hot economy september...

1 Treasury Board Ministry

Government Controllership Challenges in Alberta’s Hot Economy

September 13, 2007


Overview

Today’s Alberta Fiscal Framework Being Accountable – Government

Accountability Act Internal Audit Fiscal Pressures Revenue Volatility and Developments in Public

Sector Accounting


Today’s Alberta

An exceptionally strong economy High productivity levels Record corporate profits Lowest unemployment in 30 years Highest personal disposable income No accumulated debt (debt offset by Debt

Retirement Account) Lowest taxes


Almost $160 Billion in Major Projects


Personal Disposable Income2001-2005 Annual Average (dollars per capita)


Total Provincial Tax Load 2006-07 (per cent of the Canadian average)


Natural Gas and Crude Oil Royalties(millions of dollars)

0

2,000

4,000

6,000

8,000

10,000

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

Natural Gas Crude Oil Synthetic


Fiscal Framework – Key Elements:

Deficits and Operating Debt Outlawed 2003-04 FMC recommendationDebt for capital (e.g. P3’s)

Revenue Sustainability Fund Expense basis Contingency Allowance Capital Framework (government capital and

capital grants)


Source: Alberta Finance

Fiscal Framework - Alberta Surpluses (Deficits)

($ millions-nominal)

-5,000

-3,000

-1,000

1,000

3,000

5,000

7,000

9,000

11,00019

80-8

119

82-8

319

84-8

519

86-8

719

88-8

919

90-9

119

92-9

319

94-9

519

96-9

719

98-9

920

00-0

120

02-0

320

04-0

520

06-0

7


Fiscal Framework - 2007-08 Revenue: $35.3 billion

11%

10%

9%

7%

7%5%

2%

29%

21%

Investment Income

Fees & Licenses

Commercial

Corporate Taxes $3.1 billion

Other Taxes $3.6 billion

Federal Transfer Payments $3.7 billion

Personal Income Tax $7.3 billion

Resource Revenues $10.3 billion

Other Sources (fines and penalties; refunds of expense; miscellaneous)


Fiscal Framework:2007-08 Expense by Function: $33.1 billion

37%

1%

13%

8%

6%

10%

26%

Transportation, Communication and Utilities $2.5 billion

Agriculture, Resource Management and Economic

Development $2.1 billion

Social Services $3.1 billion

Education $8.7 billion

Health $12.2 billion

Debt Servicing $.2 billionOther $4.5 billion


Fiscal Framework: Sustainability Fund

The Fund had $7.7 billion in assets at the end of the 2006-07 fiscal year

Offset the costs of emergencies, disasters, natural gas rebates, settlements with First Nations and unexpected declines in revenue

If the Fund has assets greater than $2.5 billion, funds can be allocated to the Capital Account, Heritage Fund, endowments and other balance sheet improvements


Fiscal Framework: Contingency Allowance

A minimum of 1% of “revenue for fiscal policy purposes” must be set aside as a contingency (budgeted at $314 million in 2007-08)

This is the limit on in-year operating spending increases or revenue policy reductions

This limit excludes increases for: emergencies/disasters and natural gas rebates

funded from the Sustainability Fund; andCapital spending funded from Capital Account

and dedicated revenue/expense increases


Fiscal Framework - Capital

Addressing Capital RequirementsCapital projects can be financed from three

sources: current year revenue, Capital Account, and alternative financing (including P3s)

Capital AccountAllows the surplus from one year to be used

in another for government-owned capital projects and capital grants to local authorities


Fiscal Framework – Capital (continued)

Alternative FinancingAlternative financing of capital projects is

allowed for both government-owned capital and local authorities’ capital

Infrastructure Deficit IssuePortion of unanticipated surpluses will go to

address this issue


Capital Plan Summary by Function


Province’s Support for Capital Infrastructure


Being Accountable – Government Accountability Act

Government 3-year and Consolidated business and fiscal plans

Quarterly financial reports Annual performance reports (Measuring Up,

ministry annual reports)CCAF project to improve performance

reporting


Being Accountable: Environmental Scan

Looks at trends and issues facing Alberta government

Undertaken by a committee of Assistant Deputy Ministers

Used in the planning process to guide discussion and decisions


Being Accountable: Trends/Risks - Alberta

Growth pressures Energy sector – technical and environmental

challenges Land claims Issues around skilled workforce Urban/rural demographics Security of information Changing governmental relationships Increasing public demand for services


Being Accountable: Five Government Priorities Focus of government action:

Govern with Integrity and Transparency Manage Growth Pressures Improve Albertan’s Quality of Life Build A Stronger Alberta Provide Safe and Secure Communities

Strategies supporting the five government priorities are set out in mandate letters for each Minister

Progress on the strategies are reported quarterly on the government website http://www.premier.alberta.ca/


Being Accountable: Measuring Performance

“Measuring performance is the key to improving results and delivering services that meet the needs of Albertans. The government is setting performance benchmarks and targets so that programs can be accurately evaluated. Funding of programs will be increasingly tied to results achieved. To provide full accountability, these results will be shared with Albertans”

Budget ’95, Building a Strong Foundation


Internal Audit:An Effective Oversight Resource

Reporting relationship to Senior Officials Projects focus on adding value

Annual risk assessment and deputy ministry requests

Assurance and advisory projectsCross-government projects and ministry

specific projects Emphasis on working with ministries to

improve operations OAG relies on internal audit work


Fiscal Pressures

Volatile Resource Revenues Public expectation that spending should

increase with revenue (health, education) Demands on infrastructure (roads, hospitals,

schools) Surplus management

Two-thirds of surplus allocated to capital maintenance and renewal


Resource Revenue Volatility


Income Tax Volatility

Personal income tax revenue – subject to measurement uncertainty due primarily to the use of economic estimates of personal income growth

Corporate income tax revenue – subject to measurement uncertainty due primarily to the use of five year moving average of historical corporate income tax refund ratios to determine corporate income tax revenue balance


Sensitivities to Fiscal Year Assumptions2007-08a


Revenue Volatility and Developments in Public Sector Accounting

Intense revenue volatility Accounting developments - PSAB Federal and government transfers Solutions/Questions Experience of other jurisdictions


Revenue Volatility and Developments in Public Sector Accounting

Justification for public-private partnerships (P3s)CostsBasis of recognition and measurement of

resulting obligations and assets Expansion of the reporting entity

SUCH sector (2008-09 line-by-line) Disclosure of and assessment of capital

assets and infrastructure deficit Market value assessment of investments


Questions ??

treasury board ministry 1 government controllership challenges in alberta’s hot economy september...

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