HILL: Alberta’s $6.5B deficit underscores need for spending reductions

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According to the recent fiscal update, the Alberta provincial government will run a $6.5-billion budget deficit this fiscal year — up from the $5.2-billion budget deficit projected in the February budget. This may come as a surprise to many on the heels of a $8.3-billion surplus in 2024-25, but it’s all part of Alberta’s ongoing resource revenue rollercoaster. And it’s time to get off the track.

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Resource revenues, including oil and gas revenues, are inherently volatile.

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Resource rollercoaster

For perspective, over roughly the last decade, resource revenue been as low as $2.8 billion in 2015-16, accounting for just 6.5% of total revenue, and as high as $25.2 billion in 2022-23, accounting for 33.2% of total revenue. Alberta has a long history of enjoying budget surpluses when resource revenue is high, but inevitably falls back into deficits when resource revenue declines.

And it’s no surprise we’re back here today.

According to the recent fiscal update, resource revenue will fall by $6.3 billion this year compared to last. That means of the $14.8-billion swing in Alberta’s budget balance, nearly 43% can be explained by a decline in resource revenue alone. And if resource revenue was the same level as last year, Alberta’s budget would nearly be balanced.

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Deficits have real consequences. Consider Alberta’s last period of deficits, which went on nearly uninterrupted from 2008-09 to 2020-21. Alberta moved from a position of having more assets such as the Heritage Fund than it did debt, resulting in a net debt position of $59.5 billion in 2020-21. Overall, Alberta’s net financial position deteriorated by $94.6 billion over the period. Correspondingly, Albertans went from interest payments on provincial debt of approximately $58 per person in 2008-09 to $564 in 2020-21 (that number is expected to surpass $705 per person by 2027-28).

Fortunately, Alberta isn’t doomed to the boom-and-bust cycle.

The key is understanding Alberta’s fiscal challenges are not actually a revenue problem — they’re a spending problem. Indeed, the underlying issue is that governments typically increase spending during good times of relatively high resource revenue to levels that are unsustainable (without incurring deficits) when resource revenue inevitably declines. Put simply, ongoing spending levels significantly exceed stable ongoing revenue.

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The provincial government has made important strides in recent years by limiting spending growth to inflation and population growth. Unfortunately, spending levels were already so misaligned with stable, predictable revenue, that is simply is not sufficient to avoid deficits. Alberta needs meaningful spending reductions.

Options for cuts

Fortunately, there’s some low hanging fruit to help get the province on track. For instance, Alberta spends billion of dollars annually dolling out subsidies to select businesses and industries. For perspective, in 2024-25, grants were the largest expense for the ministry of environment and the second largest expense for the ministry of technology and innovation. The provincial government should require that each ministry closely examine its budgets and eliminate business subsidies to yield savings.

According to the recent fiscal update, Alberta will continue on the resource revenue rollercoaster in 2025-26.

It’s time to finally change course. That means meaningful spending reductions — and eliminating business subsidies is a good place to start.

Tegan Hill is director of Alberta policy at the Fraser Institute

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