Finance Minister Gary Collins is expected to release the First Quarter Financial Report on September 14th. Covering the period April 1, 2004, through June 30, 2004, the report will likely change the estimated year end surplus to as much as $500 million (1.6% of revenue). There are only two further financial reports that will be presented before the general election on May 17, 2005; the Second Quarter report in November, and the combined budget and Third Quarter Report in February. The Quarterly Reports are not audited; an audited financial statement will not be available until July 2005 but variances due to the audit should be very small compared to variances due to differences between early estimates and reality three months after the fiscal year ends. One thing is certain, like Alberta, BC has benefited from windfall profits from oil and gas. The following table compares Alberta's budget and first quarter report with BC's budget.

Fiscal Summary (millions of dollars)

	Alberta2004-05 Budget Estimate	Alberta First Quarter Update (annual rate)	British Columbia 2004-05 Budget Estimate
Revenue	22,952	26,912	30,429
Resource revenue	4,784	7,865	3,432
Expense	22,649	24,034	30,229
Assumed: Oil price	$26.00 (WTI, US$/bbl)	$34.00 (WTI, US$/bbl)	27.75 (US$/bbl at Cushing, Ok)
Assumed: Gas price	$4.20 (Cdn$/mcf)	$6.01 (Cdn$/mcf)	$4.65 (Cdn$/gigajoule) which is $4.96 (Cdn$/mcf)

If resource revenues increased in BC by the same percentage (64.4%) as they did in Alberta, BC would gain $2.2 billion. The optimists are suggesting that BC may be $500 million ahead so a little explaining is necessary to account for the difference. The original $4.784 billion estimated by Alberta for resource revenue consisted of $3.373 for natural gas, $558 million for oil, $100 for synthetic crude oil, $9 million for coal, and $744 for leases and rentals. Forestry revenue is so small it doesn't even get its own line in the Alberta budget. By contrast, BC's estimated $3.432 in resource revenue is made up of $1.213 billion for natural gas, $215 million from the Columbia River Treaty, $603 million from other energy and minerals, $999 million from forests and $402 from water and other resources. When it comes to the details of natural resource revenue, BC and Alberta are very different but natural gas is important for both, over 70% of Alberta's resource revenue and over 35% of BC's resource revenue.

Notice in the table above that BC assumed higher prices for both gas and oil. Notes in the BC budget indicate that every fifty cent increase in the price of natural gas equals an annual revenue gain of between $120 to $170 million (a fifty cent increase produces a $525 million increase in revenue for Alberta). In the first quarter the price averaged $1.05 higher than assumed, so if the price holds for the balance of the year, the price effect for natural gas will contribute about $300 million more to BC's coffers. How much gas is produced also matters; BC assumed an increase of 8.1% in production volume over last year. The most recent data on production volume from Statistics Canada is for December 2003; production was then down 14% relative to the peak in May 2002. It will be interesting to see what Collins reports on the volume of gas production in his First Quarter Report.

A central message in the Campbell song sheet refers to BC's economy "turning the corner". An improvement in economic growth has less of an impact on provincial revenues than it used to because the government shifted the tax burden from taxes that fluctuate with income to more regressive taxes. The last budget indicated that revenue increase between $150 and $250 million for every 1% increase in nominal GDP (including inflation). Since inflation has been constant, the primary change in the GDP has been in real growth. In February 2004, Collins estimated that BC's nominal GDP would grow by 4.6%, real GDP by 2.8%. In addition to a possible $300 million gain from higher natural gas prices, BC's treasury could gain another $100 million due to slightly higher economic growth than originally assumed.

The biggest "fiscal sensitivities" are related not to changes in underlying assumptions, but in sudden and unexpected shocks and errors, principally related to treatment by the federal government. The First Quarter Report in 2003 mentioned "recent and significant unanticipated fiscal and economic pressures". Sudden changes in how the federal government calculates income tax owing BC under the tax collection agreement or changes in equalization payments can easily swamp gains from natural resources or economic growth. We won't know how those shifts add or subtract from each other until sometime in July 2005. In the meantime, the upcoming Quarterly Report should be carefully studied but not taken with much more seriousness than a long term weather report.