GRF Surpluses Ahead With No Draw From GFSF
The National Bank of Canada | Mar 23, 2012 01:53AM ET
For the fiscal year ending March 31st, the General Revenue Fund (GRF) surplus is forecast to reach $352.9 million, $29.6 million less than estimated.
For 2012-2013, the GRF surplus is budgeted at $47.5 million, with no draw from the Growth and Financial Security Fund (GFSF).
The infrastructure budget for 2012-13 is $788 million, up $193 million or 32% from last year. Real GDP is forecast to grow 2.8% in 2012 and 2.6% in 2013.
WTI crude is assumed at US$100 a barrel in 2012, at US$102 in 2013 and 2014 and at US$100 in the two following years.
Natural gas is assumed at C$3.00 per gigajoule in 2012, $3.50 in 2013 and $4.00 in 2014. The price of potash is assumed to rise 13.8% in 2012, and to grow an average 0.9% over the next two years.
GRF Public Debt is budgeted to increase from 11.4% of GDP at the end of March 2012 to a peak of 12.4% in 2014 and 2015., explained by the rise of Crown corporation general debt and government business enterprise specific debt.
The borrowing requirement for 2012-13 is budgeted at $1.3 billion and derives mostly from Crown corporations.
Summary
In the fiscal year coming to a close, the Province enjoyed a net increase of $86 million in own-source revenue compared to the 2011 Budget delivered last March. Taxes and non-renewable resources revenue came in lower than expected by a total of $228 million, mostly due to lower corporate income tax and revenue from Crown land sales. However, this was more than offset by a special dividend from Crown Investments Corporation (CIC – a holding company for 11 subsidiary commercial Crown corporations) $120 million higher than expected and larger-than-expected interest revenues. Also, Federal transfers were larger due to cost-sharing of provincial flood-related expenditures. Program expenses were higher by $350 million, mostly due to the costs related to 2011 flooding, larger outlays in education (including higher requirements for Teachers’ Pensions and Benefits) and highways and infrastructures. The increase in program expenses outpacing growth in revenues resulted in the pre-transfer GRF surplus being $55.8 million versus $115 million budgeted last spring.
Excluding non-recurring federal transfers, CIC dividend and interest earnings, revenues in 2012/13 are forecast to grow 5.4%. The increase comes from a 14% jump in non-renewable resource revenue, especially potash, oil and the resource surcharge. Compared to the 2011-12 budget estimate, 2012-13 GRF expense is forecast to increase 4.7%, mostly due to health and education (including Teachers’ Pensions and Benefits). This results in a $95 million pre-transfer GRF surplus -- half of which has to be transferred to the GFSF. The GRF balance for 2012/13 is forecast to be $47.5 million.
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Fiscal year 2012/2013 represents the fifth year under the Growth and Financial Security Act. The Act requires a four-year financial plan in which total GRF expense must balance with or be less than total GRF revenue each year. Accordingly, over the subsequent three years, GRF revenue is forecast to grow at an average of 4.2%, largely due to strong growth in taxation and non-renewable resource revenue, while expense growth is targeted at an average of 4.0%. This results in a GRF balance which grows during the period, without any draw from the GFSF fund. The GFSF is a reserve to help pay for unexpected emergencies, a reasonable approach when non-renewable resources account for 28% of GRF revenue.
The economic growth forecast of 2.8% in 2012 and 2.6% in 2013 is conservative, as private forecasters are expecting growth above 3% for both years.
The Growth and Financial Security Act also established the Debt Retirement Fund (DRF). The DRF is an accounting of the GRF surpluses that are allocated to the fund on or after April 1, 2008. Its purpose is to assist in achieving the longterm objective of eliminating the debt. Public debt of the GRF is forecast to grow over the medium term due to Crown corporation general debt and Government business enterprise specific debt. The GRF public debt and the Summary statement of debt do not include unfunded pension liabilities which were estimated at $6.0 billion at the end of fiscal 2011/12. Even taking this into account, the province’s gross-debt-to-GDP ratio would be the second lowest in the country, behind Alberta.
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