Pumpjacks operate on oil and gas wells near Calgary, on April 28, 2023.Jeff McIntosh/The Canadian Press
Alberta Premier Danielle Smith has warned that her government’s projected surplus budgets are at risk of imploding unless oil prices rebound, a fiscal pinch that could further prevent her from making good on an election promise to cut personal income taxes.
Ms. Smith, at a Tuesday press conference about her government’s latest legal challenge to the federal carbon levy, indicated Alberta could soon run deficits given the gap between recent oil prices and the province’s budget assumptions. At today’s oil price, Alberta’s revenue in the next fiscal year would be about $4.5-billion below expectations, according to economist Trevor Tombe.
Ms. Smith is a fierce champion of Alberta’s oil and gas industry and, like her predecessors, has struggled to lessen the province’s dependence on natural resources. She and the United Conservative Party pitch themselves as responsible financial managers, but under Ms. Smith’s leadership, spending has increased. Now, with weaker oil prices and exploding population growth, the Premier concedes balanced budgets may not be possible.
“It is a serious problem,” Ms. Smith told reporters. “We have a number of different pressures coming our way. And we have to be honest with people about what we’re facing.”
A barrel of West Texas Intermediate oil was worth about US$67 Tuesday, compared to the government’s budget assumption of US$74 per barrel in this fiscal year ending next March and for the following two years. Prof. Tombe, who instructs at the University of Calgary, said Alberta should be able to post a surplus this fiscal year, given healthy oil prices earlier in the year, but future deficits are likely without a significant shift.
“It is a near certainty if oil prices stay where they are,” he said.
Alberta, in February, predicted a surplus of $2.6-billion in the 2025-2026 fiscal year, which starts next April. The 10-per-cent gap between today’s oil price and the government’s assumption translates to a deficit of about $1.9-billion in the next fiscal year, barring other changes to the budget.
Ms. Smith’s 2023 election promise to cut personal income taxes for everyone earning at least $60,000 annually would knock $1.4-billion out of Alberta’s revenue. The Premier is under pressure from a number of UCP members to fulfill this promise and has oscillated on the timing.
The Premier was vague when asked if her government was still considering speeding up its most recent timeline to bring tax relief next year.
“We are doing what we can to accelerate the tax cut,” Ms. Smith said, adding the government is about to start the budgeting process for the upcoming fiscal year. The results of that homework will influence whether the tax cut is possible, she said.
Prof. Tombe does not think the government can balance the books by trimming expenses without significant changes to the most recent iteration of the UCP’s fiscal policy. Ms. Smith, in September, announced $8.6-billion in capital spending for schools, which will mean an increase in operating costs, Prof. Tombe said as an example. Costs in health care are also climbing, he noted.
The UCP’s fiscal framework, introduced in 2023, stipulates that Alberta must balance its budget, although it makes an exception should revenue drop by $1-billion from the prior-year third-quarter forecast.
Alberta would be able to balance its budget at current oil prices under former premier Jason Kenney’s approach, Prof. Tombe said. “Premier Smith dramatically did a 180 on the fiscal restraint of Kenney and exposed the province to this risk,” he said.
“One can agree with the increase in spending, but it is Premier Smith’s decisions that led us to this degree of exposure.”