Annual report: navigating a challenging year

After hitting a low point in mid-summer 2016, Alberta’s economy began showing signs of recovery, with 44,000 full-time jobs added between July and March. The Alberta Activity Index, a weighted average of nine monthly indicators, showed a 7.7 per cent increase in economic activity from May to March.

The Government of Alberta 2016-17 Annual Report highlights work by the government to protect essential programs and services, and encourage diversification and job creation during dramatic upheavals in the province’s economy and finances.

“The catastrophic tumble in oil prices took a deep toll on Alberta families last year and that was only compounded by the Wood Buffalo wildfire. But Albertans are resilient and compassionate. When times are tough, we help each other. While Alberta’s economy returns to growth and jobs continue to come back, we recognize this is not yet felt by all Albertans. That’s why we continue to work hard to make life better for all Alberta families.”

Government followed through on its promises and provided stable funding for core programs, including health care, social services and education, in 2016-17. This ensured families had access to the supports and services they count on especially in tough times. The new Alberta Child Benefit and expanded Alberta Family Employment Tax Credit helped families living on low incomes in a time of hardship with direct financial assistance.

Investment in infrastructure kept many Albertans working on badly needed schools, health facilities and roads. Construction was completed on 83 new schools and modernization projects, the Medicine Hat Regional Hospital addition, twinning of Highway 63 between Fort McMurray and Grassland, and the Anthony Henday Drive in Edmonton. Significant progress was made on the Calgary ring road, post-secondary facilities, housing and many other projects.

Government cut the small business tax rate by 33 per cent to two per cent and introduced the Alberta Investor Tax Credit and Capital Investment Tax Credit to spur jobs and encourage economic growth and diversification.

The province ended 2016-17 with a $10.8 billion deficit, $263 million higher than estimated in Budget 2016 and consistent with second and third quarter forecasts. This reflects the impact of the Wood Buffalo wildfire, and accounting treatments regarding the $1.1 billion for future coal transition payments and $2 billion from the Balancing Pool, both at the recommendation of the Office of the Auditor General. Neither item had an impact on actual spending but both count toward the deficit.

Government found savings and efficiencies without compromising services or resorting to reckless cuts. A new deal with Alberta’s doctors saves up to $500 million over two years. Restraint continues through limiting discretionary spending and freezing management and political staff salaries. The ongoing agencies, boards and commissions review will save $16 million when cuts to salaries and perks of highly paid executives come fully into effect. Government also found $250 million in various in-year savings and expense reductions in 2016-17.

Government has limited overall operating expense growth to an average of about 3 per cent, despite pressures from strong population growth and the economic downturn, and compared to annual growth of 4.6 per cent between 2009-10 and 2014-15.

Revenue was $42.4 billion, up $1 billion from budget. Gains from higher-than-expected Heritage Fund investment income and bitumen royalties were partly offset by lower personal and corporate income tax revenue as low oil prices and wildfire disruptions weighed on economic activity and incomes.

Operating expense was $44.8 billion, a $519 million increase from budget, largely to address pressures from continued population growth and the economic downturn. Changes in spending included funding for student enrolment growth in schools and higher caseloads for income support, AISH and children’s programs.

Alberta’s economy contracted an estimated 3.5 per cent in 2016, but positive indicators began to appear later in the summer and continued into early 2017. Manufacturing sales climbed during the last half of the fiscal year, with food processing, wood product manufacturing and chemicals improving. By the end of 2016-17, rig activity had nearly doubled, retail sales recovered almost all the losses from the downturn, and non-energy exports and manufacturing shipments rebounded.

2016-17 key facts

• The Alberta government continues to have net assets totalling $37.7 billion, contributing to one of the strongest balance sheets in the country.
• Wood Buffalo firefighting and support expense was $710 million, offset by $495 million in federal assistance.
• The Wood Buffalo wildfire slowed the economy by an estimated 0.6 per cent. Lost revenue from royalties, personal and corporate income taxes was estimated at about $300 million.
• Population growth was 1.8 per cent in 2016.
• The Heritage Fund’s book value was $15.4 billion, an increase of $182 million from March 31, 2016. 
• WTI averaged US$47.93 per barrel (up from the budget estimate of $42).
• The US-Canadian dollar exchange rate averaged US¢76.2/Cdn$ in 2016-17 (2.7 cents higher than the Budget 2016 estimate).
• The light-heavy differential for crude oil was US$13.93 ($1.28 narrower than the budget estimate).