Albertans Should Brace for More Bad News in Fiscal Update as Part of Alberta’s Resource Revenue Rollercoaster

By: Tegan Hill

The Smith government will soon release its fiscal update, which reveals the state of government finances, and Finance Minister Nate Horner recently warned that the deficit—currently projected at $6.5 billion this fiscal year—may be higher than previous forecasts if today’s low oil prices persist.

And this is just the latest bit of bad fiscal news. According to the government’s projections, its finances have already deteriorated by $14.8 billion since last fiscal year when it ran a $8.3 billion surplus.

It’s all part of Alberta’s ongoing resource revenue rollercoaster. Indeed, you can attribute 43 per cent of that fiscal deterioration to a decline in resource revenue (e.g. oil and gas royalties) year over year. In fact, if this year’s resource revenue was the same as last year’s, the budget would nearly be balanced.

Unfortunately, things may only get worse. Horner said the deficit could be “a couple-billion dollars higher” thanks to lower oil prices, which have slumped below US$57 per barrel while the government’s budget originally banked on US$68.00 per barrel. And some forecasters expect oil prices to dip even lower in 2026. For perspective, every $1 drop in West Texas Intermediate—a common benchmark oil price—slashes $750 million from the Alberta government’s bottom line.

Put simply, Alberta may be headed for another period of routine deficits. The last time this happened, the province lost its coveted debt-free status and fell into more than a decade of red ink that led to $60 billion in net debt (total debt minus financial assets including Heritage Fund) by 2020/21. Consequently, the government’s debt interest payments increased to $2.5 billion that year (or nearly $600 per Albertan)—money that could have been used for health care, education and/or to make fiscal room that would allow the government to cut taxes.

So, what can the Smith government do to help mitigate the damage of more red ink? Oil prices are outside of its control, so it must focus on what it can control—spending.

For instance, the Alberta government spends billions of dollars annually on subsidies to select business and industries (a.k.a. corporate welfare). Indeed, grants are one of the largest expenses for many of the government’s ministries yet empirical evidence suggests corporate welfare does little if anything to generate widespread economic growth. It’s time to finally eliminate this type of wasteful spending and put Alberta’s finances on more stable footing, in good times and bad.

Albertans should brace themselves for more bad news in the Smith government’s upcoming fiscal update. And while the price of oil is outside the government’s control, the government has the power to lessen the damage and help avoid more deficits in the future. It only needs the will.

 

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