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Alberta

Alberta 2025 Budget Review from the Alberta Institute

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9 minute read

The government has just tabled its budget in the Legislature.

We were invited to the government’s advance briefing, which gave us a few hours to review the documents, ask questions, and analyze the numbers before the official release.

Now that the embargo has been lifted, we can share our thoughts with you.

However, this is just our preliminary analysis – we’ll have a more in-depth breakdown for you next week.

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The 2025/26 Budget is a projection for the next year – what the government expects will happen from April 1st, 2025 to March 31st, 2026.

It represents the government’s best estimate of future revenue and its plan for expenditures.

In the budget (and in this email) this type of figure is referred to as a Budget figure.

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The actual final figures won’t be known until the 2025/26 Annual Report is released in the middle of next year.

Of course, as we’ve seen in the past, things don’t always go according to plan.

In the budget (and in this email) this type of figure is referred to as an Actual figure.

Importantly, this means that the 2024/25 Annual Report isn’t ready yet, either.

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Therefore, in the meantime, the Q3 2025/26 Fiscal Update, which has figures up to December 31st, 2024, provides a forecast for the 2024/25 year.

The government looks at the actual results three quarters of the way through the previous year, and uses those figures to get the most accurate forecast on what will be the final result in the annual report, to help with estimating the 2025-26 year.

In the budget (and in this email) this type of figure is referred to as a Forecast figure.

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Accurately estimating, and tracking these three types of figures is a key part of good budgeting.

Sometimes, the economy performs better than expected, oil prices could be higher than initially forecast, or more revenue may come in from other sources.

But, other times, there’s a recession or a drop in oil prices, leading to lower-than-expected revenue.

On the spending side, governments sometimes find savings, keeping expenses lower than planned.

Alternatively, unexpected costs, disasters, or just governments being governments can also drive spending higher than budgeted.

The best way to manage this uncertainty is:

  1. Be conservative in estimating revenue.
  2. Only plan to spend what is reasonably expected to come in.
  3. Stick to that spending plan to avoid overspending.

By following these principles, the risk of an unexpected deficit is minimized.

And if revenue exceeds expectations or expenses come in lower, the surplus can be used to pay down debt or be returned to taxpayers.

On these three measures, this year’s budget gets a mixed grade.

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On the first point, the government has indeed made some pretty conservative estimates of revenue – including assuming an oil price several dollars below where it currently stands, and well below the previous year’s predictions.

The government has also assumed there will be some significant (though not catastrophic) effects from a potential trade war.

If oil prices end up higher, or Canada avoids a trade war with the US, then revenue could be significantly higher than planned.

Interestingly, this year’s budget looks very different depending on whether you compare it to last year’s budget, or the latest forecast.

This year’s budget revenue is $6.6 billion lower than what actually happened in last year’s forecast revenue.

But, this year’s budget revenue is actually $600 million higher than what was expected to happen in last year’s budget revenue.

In other words, if you compare this year’s budget to what the government expected to happen last year, revenue is up a small amount, but when you compare this year’s budget to what actually happened last year, revenue is down a lot.

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On the second point, unfortunately, the government doesn’t score so well.

Expenses are up quite a bit, even though revenue is expected to drop.

According to some measurements, expenditures are increasing slower than the combined rate of population growth and inflation – which is the goal the government set for itself in 2023.

But, when other expenses like contingencies for emergencies are included, or when expenses are measured in other ways, spending is increasing faster than that benchmark.

This year’s budget expenses are $4.4 billion higher than what was actually spent in last year’s forecast expenses.

But, this year’s budget expenses are $6.1 billion higher than what was expected to happen in last year’s budget expenses.

Perhaps the bigger question is why is expenditure increasing at all when revenue is expected to drop?

If there’s less money coming in, the government should really be using this as an opportunity to reduce overall expenditures.

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On the third point, we will – of course – have to wait and see what the final accounts look like next year!

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Before we wrap up this initial analysis, there’s one aspect of the budget that is likely to receive significant attention, and that is a tax cut.

Originally planned to be phased in over the next few years, a tax cut will now be back-dated to January 1st of this year.

Previously, any income below about $150,000 was subject to a 10% provincial tax, while incomes above $150,000 attract higher and higher tax rates of 12%, 13%, 14%, and 15% as incomes increase.

Under the new tax plan, incomes under $60,000 would only be taxed at 8%, with incomes between $60,000 and $150,000 still paying 10%, and incomes above $150,000 still paying 12%, 13%, 14%, and 15%, as before.

Some commentators are likely to question the wisdom of a tax cut that reduces revenue when the budget is going to be in deficit.

But, the reality is that this tax cut doesn’t actually cost much.

We’ll have the exact figures for you by next week, but suffice to say that it’s a pretty small portion of the overall deficit, and there’s a deficit because spending is up a lot, not because of a small tax cut.

In general, lower taxes are good, but we would have preferred the government work towards a lower, flatter tax instead.

The Alberta Advantage was built on Alberta’s unique flat tax system where everyone paid the same low flat tax (not the same amount, the same percentage!) and so wasn’t punished for succeeding.

Alberta needs a plan to get back to a low flat tax, and we will continue to advocate for this at the Alberta Institute.

Maybe we can do better than just returning to the old 10% flat tax, though?

Maybe we should aim for a flat tax of 8%, instead?

That’s it for today’s quick initial analysis.

In next week’s analysis, we’ll break down the pros and cons of these decisions and outline where we might have taken a different approach.

In the meantime, if you appreciate our work and want to support more of this kind of independent analysis of Alberta’s finances, please consider making a donation here:

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Alberta

Big win for Alberta and Canada: Statement from Premier Smith

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Premier Danielle Smith issued the following statement on the April 2, 2025 U.S. tariff announcement:

“Today was an important win for Canada and Alberta, as it appears the United States has decided to uphold the majority of the free trade agreement (CUSMA) between our two nations. It also appears this will continue to be the case until after the Canadian federal election has concluded and the newly elected Canadian government is able to renegotiate CUSMA with the U.S. administration.

“This is precisely what I have been advocating for from the U.S. administration for months.

“It means that the majority of goods sold into the United States from Canada will have no tariffs applied to them, including zero per cent tariffs on energy, minerals, agricultural products, uranium, seafood, potash and host of other Canadian goods.

“There is still work to be done, of course. Unfortunately, tariffs previously announced by the United States on Canadian automobiles, steel and aluminum have not been removed. The efforts of premiers and the federal government should therefore shift towards removing or significantly reducing these remaining tariffs as we go forward and ensuring affected workers across Canada are generously supported until the situation is resolved.

“I again call on all involved in our national advocacy efforts to focus on diplomacy and persuasion while avoiding unnecessary escalation. Clearly, this strategy has been the most effective to this point.

“As it appears the worst of this tariff dispute is behind us (though there is still work to be done), it is my sincere hope that we, as Canadians, can abandon the disastrous policies that have made Canada vulnerable to and overly dependent on the United States, fast-track national resource corridors, get out of the way of provincial resource development and turn our country into an independent economic juggernaut and energy superpower.”

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Alberta

Energy sector will fuel Alberta economy and Canada’s exports for many years to come

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From the Fraser Institute

By Jock Finlayson

By any measure, Alberta is an energy powerhouse—within Canada, but also on a global scale. In 2023, it produced 85 per cent of Canada’s oil and three-fifths of the country’s natural gas. Most of Canada’s oil reserves are in Alberta, along with a majority of natural gas reserves. Alberta is the beating heart of the Canadian energy economy. And energy, in turn, accounts for one-quarter of Canada’s international exports.

Consider some key facts about the province’s energy landscape, as noted in the Alberta Energy Regulator’s (AER) 2023 annual report. Oil and natural gas production continued to rise (on a volume basis) in 2023, on the heels of steady increases over the preceding half decade. However, the dollar value of Alberta’s oil and gas production fell in 2023, as the surging prices recorded in 2022 following Russia’s invasion of Ukraine retreated. Capital spending in the province’s energy sector reached $30 billion in 2023, making it the leading driver of private-sector investment. And completion of the Trans Mountain pipeline expansion project has opened new offshore export avenues for Canada’s oil industry and should boost Alberta’s energy production and exports going forward.

In a world striving to address climate change, Alberta’s hydrocarbon-heavy energy sector faces challenges. At some point, the world may start to consume less oil and, later, less natural gas (in absolute terms). But such “peak” consumption hasn’t arrived yet, nor does it appear imminent. While the demand for certain refined petroleum products is trending down in some advanced economies, particularly in Europe, we should take a broader global perspective when assessing energy demand and supply trends.

Looking at the worldwide picture, Goldman Sachs’ 2024 global energy forecast predicts that “oil usage will increase through 2034” thanks to strong demand in emerging markets and growing production of petrochemicals that depend on oil as the principal feedstock. Global demand for natural gas (including LNG) will also continue to increase, particularly since natural gas is the least carbon-intensive fossil fuel and more of it is being traded in the form of liquefied natural gas (LNG).

Against this backdrop, there are reasons to be optimistic about the prospects for Alberta’s energy sector, particularly if the federal government dials back some of the economically destructive energy and climate policies adopted by the last government. According to the AER’s “base case” forecast, overall energy output will expand over the next 10 years. Oilsands output is projected to grow modestly; natural gas production will also rise, in part due to greater demand for Alberta’s upstream gas from LNG operators in British Columbia.

The AER’s forecast also points to a positive trajectory for capital spending across the province’s energy sector. The agency sees annual investment rising from almost $30 billion to $40 billion by 2033. Most of this takes place in the oil and gas industry, but “emerging” energy resources and projects aimed at climate mitigation are expected to represent a bigger slice of energy-related capital spending going forward.

Like many other oil and gas producing jurisdictions, Alberta must navigate the bumpy journey to a lower-carbon future. But the world is set to remain dependent on fossil fuels for decades to come. This suggests the energy sector will continue to underpin not only the Alberta economy but also Canada’s export portfolio for the foreseeable future.

Jock Finlayson

Senior Fellow, Fraser Institute
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