Western Canada: Alberta’s budget tightens purse strings in unexpected ways

Hi everyone, Mark Iype in Edmonton today.

When Alberta Premier Danielle Smith made her televised address a week before her government presented its budget on Thursday, one of the big takeaways was that the promised tax cut she campaigned on last year was not immediately happening.

While it was (rightfully) framed as a broken promise, it was also a signal for what was to come.

On Thursday, Finance Minister Nate Horner presented a budget that tightened the purse strings in a way many were probably not expecting.

“We’re trying to strike the right balance between saving for the future, managing our debt responsibly, and making sure that we have the infrastructure for a growing province,” he said. “It hasn’t been easy.”

Horner said the government had to make tough decisions as Alberta copes with a surging population, the cost of servicing debt rises, and oil and gas royalty revenues slide. All of that adds up to a tight financial situation in which the projected surplus is fairly precarious.

Alberta expects it will have about $73.5-billion in revenue in 2024-25 while spending roughly $73.2-billion, leaving a surplus of $367-million. While spending on operating expenses is up by 3.9 per cent, the government’s numbers show a growth of population plus inflation at 7.4 per cent.

As indicated by Smith previously, the intention is to increase spending, but not at a rate that keeps pace with Alberta’s population growth and inflation.

One of the bigger numbers in the budget document is the $2-billion contingency cushion, which is earmarked for expenses tied to natural disasters such as floods, fires and droughts. While that number is up from last year’s allocation of $1.5-billion, the government expects contingency expenses to hit $2.9-billion in the past fiscal year, ending March 31.

Ahead of what is expected to be a bad wildfire season and widespread drought, those funds could be quickly depleted.

“We know we’re starting in a rough spot,” Horner said.

As The Globe’s Kelly Cryderman argues, this year’s budget looks a lot different compared to last year’s pre-election financial plan.

“In contrast to the more freewheeling pre-election budget from the Smith government one year ago, this restrained document – in both tone and substance – is designed to keep expectations low,” she said.

While the income tax cut didn’t materialize, one thing that did was a new tax on electric vehicles, which will cost EV owners $200 a year. Alberta expects to collect $1-million from the tax in 2024-25 and about $8-million in 2026-27.

The government says it’s needed because the heavier vehicles cause extra road wear-and-tear, and also because EV drivers don’t contribute to fuel taxes. But as Kelly says, “to many, it will look like yet another slapdown to the green movement.”

Of course, while the province remains in a quest to get off the royalty roller coaster tied to the oil and gas market, the revenue remains the major driving force in Alberta’s finances.

Alberta expects bitumen royalties to hit $12.5-billion in 2024-25, compared with its forecast of $14.4-billion in 2023-24. That is predicated on West Texas Intermediate, the North American benchmark price for oil, trading at an average of US$74 a barrel.

For every US$1 drop in the price of oil, the budget will be thrown off by $630-million.

This is the weekly Western Canada newsletter written by B.C. Editor Wendy Cox and Alberta Bureau Chief Mark Iype. If you’re reading this on the web, or it was forwarded to you from someone else, you can sign up for it and all Globe newsletters here.