HILL: Smith gov’t records $8.3B surplus… but good times may soon end

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According to last week’s fiscal update, the Smith government recorded an $8.3-billion surplus in 2024-25 — $8 billion more than what the government projected in its original 2024 budget. But the good times won’t last forever.

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Due largely to population growth, personal income tax revenue exceeded budget projections by $500 million. Business tax revenue exceeded budget expectations by $1.1 billion. And critically, thanks to relatively strong oil prices, resource revenue (e.g. oil and gas royalties) saw a $4.7-billion jump.

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Boom-and-bust cycle

The large budget surplus is good news, particularly as it will be used to pay down government debt (which taxpayers must ultimately finance) and to invest for the future. But again, the good times could soon be over. Recall, the Alberta government incurred a $17-billion budget deficit just a few years ago in 2020-21. And it wasn’t only due to COVID — until the recent string of surpluses, the government ran deficits almost every year since 2008-09, racking up significant amounts of debt, which still largely persists today. As a result, provincial government debt-interest payments cost each Albertan $658 in 2024-25. Moreover, in February’s budget, the Smith government projected more deficits over the next three years.

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Generally, Alberta’s fiscal fortunes follow the price of oil. Over the past decade, for example, resource revenue has been as low as $2.8 billion in 2015-16, while oil prices slumped to $US45 per barrel, and as high as $25.2 billion in 2022-23, when oil prices jumped to $US89.69 per barrel.

Put simply, resource revenue volatility fuels Alberta’s boom-and-bust cycle. In 2025-26, the West Texas Intermediate oil price will be a projected $US68 per barrel with projected resource revenue falling by $4.9 billion year-over-year.

What can be done?

But oil prices don’t need to dictate Alberta’s fiscal fortune. Indeed, if the Smith government restrains its spending, it can avoid deficits even when resource revenues fall. There are plenty of ways to rein in spending. For instance, the government spends billions of dollars in subsidies (a.k.a. corporate welfare) to select industries and businesses in Alberta every year despite a significant body of research that shows these subsidies fail to generate widespread economic benefit. Eliminating these subsidies is a clear first step to deliver significant savings.

The budget surplus is undoubtedly positive for Albertans, but the good times could soon come to an end. To avoid deficits and debt accumulation moving forward, the Smith government should rein in spending.

Tegan Hill is director of Alberta policy at the Fraser Institute.

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