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By Tegan Hill
According to the Smith government’s new budget, the government will not contribute to the Heritage Fund this fiscal year. The abrupt halt, after $5.6 billion in total contributions from 2022/23 to 2025/26, underscores the need for more robust fiscal rules to manage Alberta’s volatile finances.
Alberta’s finances are inherently volatile due largely to resource revenue (e.g. oil and gas royalties), which is heavily influenced by commodity prices. When times are good and resource revenue is relatively high, the province tends to enjoy surpluses, but when resource revenue falls, it spins into deficit.
For example, just a few years ago in 2022/23, resource revenue was $25.2 billion and the government enjoyed a $11.5 billion budget surplus. Amid the windfall, the government created a new rule—that it would use at least 50 per cent of any budget surplus for one-time initiatives, to repay debt or contribute to the Heritage Fund (Alberta’s long-term resource revenue savings fund). The Smith government contributed $753 million to the fund in 2022/23, $2.0 billion in 2024/25 and $2.8 billion in 2025/26.
The goal is to build up the Heritage Fund so the government can help turn one-time volatile resource revenue into a more stable financial asset that could provide revenue to benefit Albertans over the long term—even after oil and gas assets are depleted. And it’s a worthy goal.
But after a few years of relatively high resource revenue and budget surpluses, projected resource revenue has fallen to $16.3 billion in 2025/26 and $13.2 billion in 2026/27. The government projects a $4.1 billion deficit in 2025/26 and a $9.4 billion deficit in 2026/27. As such, it has no plans to contribute to the fund in 2026. And because the government projects deficits to 2028/29, Albertans shouldn’t expect to see any more deposits over the next few years.
The Alberta government has a long history of making big commitments to the Heritage Fund during the good times, but failing to stick with it during the tough times. When the Lougheed government created the fund in 1976/77, it created a rule that the government must deposit 30 per cent of resource revenue in the fund each year. But following a decline in resource revenue in 1982/83, the government quickly reduced the rate to 15 per cent. Following a second collapse of oil prices in 1986/87, the government eliminated the requirement entirely. Other than some ad hoc deposits from 2005/06 to 2007/09, the government made no other deposits until the Smith government in 2022/23.
That’s nearly 50 years of neglecting the Heritage Fund, which has consequently failed to meaningfully grow over time.
Fortunately, policymakers in Alberta can learn from other successful resource revenue savings funds. Consider Alaska’s Permanent Fund, which was also created in 1976 but is now worth about US$87 billion (roughly C$119 billion) compared to Alberta’s C$29.9 billion Heritage Fund. What does Alaska’s government do differently?
Various rules contribute to Alaska’s success, but the dividend rule—wherein Alaska’s government pays a share of the fund’s earnings to Alaskan citizens via a dividend each year—is arguably the most critical. The dividend gives citizens an ownership share in the fund, which creates the political pressure and political will for governments to responsibly grow and maintain the fund. After all, any government that mismanages the fund would face the wrath of Alaskan voters who would likely receive smaller dividend cheques. Overall, Alaska’s fund has paid out more than US$31 billion (roughly C$43 billion) to Alaskan citizens via dividends. In 2024, each Alaskan received US$1,702 (roughly C$2,400).
The Smith government has no plans to contribute to the Heritage Fund in 2026—despite it being just as important to contribute during periods of deficits as periods of surplus. To ensure growth in the Heritage Fund over time, and to deliver benefits to Albertans into the future, the Smith government should learn from Alaska’s success.
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