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Alberta

With spending restraint, Alberta can re-introduce a rainy-day fund worth $9.8 billion by 2025/26

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From the Fraser Institute

It’s Time to Get Off the Resource Revenue Rollercoaster: Re-establishing the Alberta Sustainability Fund

With spending restraint, Alberta can re-introduce a rainy-day fund worth $9.8 billion by 2025/26 that could help insulate the province’s budget from swings in resource revenue, finds a new study published by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

“Alberta has an ongoing fiscal problem fueled by volatile resource revenues, but reintroducing a rainy-day fund, based on the previously successful Alberta Sustainability Fund, would help get Alberta off this resource revenue rollercoaster and stabilize provincial finances for the long-term,” said Tegan Hill, associate director of Alberta policy at the Fraser Institute and co-author of There’s time to get off the resource revenue rollercoaster: Re-establishing the Alberta Sustainability Fund.

Alberta governments typically include all resource revenue in the budget, meaning that during periods of relatively high resource revenue, the province enjoys budget surpluses but faces pressure to increase spending, and when resource revenues decline, with comparatively high levels of spending, the province’s finances turn to deficits.

Consider that amid the windfall in resource revenue, in Budget 2023, the Alberta government increased cumulative spending by $10.1 billion from 2022/23 through 2024/25 compared to the 2022 Mid-Year Fiscal update just three months earlier.

Rather than continue to spend relatively high one-time resource revenue, the Alberta government can use this opportunity to stabilize provincial finances over the long-term.

By limiting resource revenue included the budget to a stable amount, it will thereby limit the amount of money available for annual spending. Any resource revenue above the set stable amount would be automatically saved in a rainy-day fund to be withdrawn to maintain that stable amount in years with relatively low resource revenue, thus, helping to avoid budget deficits.

The study calculates that with spending restraint Alberta can fund a rainy-day fund worth $9.8 billion by 2025/26.

“The rainy-day fund could be implemented all while still maintaining a balanced budget for Alberta,” Hill said.

Summary

  • Alberta’s volatile resource revenues are fueling its ongoing fiscal problem. The provincial government typically includes all resource revenue in its budget. When resource revenue is relatively high, the province enjoys budget surpluses but faces pressure to increase spending; when resource revenues drop, spending remains high and the province turns to deficits.
  • Despite efforts to better manage Alberta’s finances, the Smith government is largely repeating past mistakes by increasing spending during a period of relatively high resource revenue.
  • In the 2022 mid-year update, the Smith government increased the plan for nominal program spending from Budget 2022 every year from 2022/23 through 2024/25 for a cumulative increase of $5.9 billion. In Budget 2023, the Smith government increased the plan further with a cumulative increase of $10.1 billion from 2022/23 through 2024/25 compared to the 2022 mid-year update.
  • Rather than spend all of the resource revenue in years when it is relatively high, the Alberta government should use this opportunity to stabilize provincial finances over the long-term by re-introducing a rainy-day account based on the earlier Alberta Sustainability Fund (ASF).
  • To do so, it would limit the resource revenue included the budget to a stable amount, thereby limiting the amount of money available for annual spending. Any resource revenue above the set stable amount would be automatically saved in the ASF to be withdrawn to maintain that stable amount in years with relatively low resource revenue. The government could implement the ASF while maintaining a balanced budget and without an annual reduction in nominal spending.
  • Based on 2023 budget projections, with spending restraint, the provincial government could re-introduce an ASF worth $9.8 billion by 2025/26.

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Alberta

Low oil prices could have big consequences for Alberta’s finances

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From the Fraser Institute

By Tegan Hill

Amid the tariff war, the price of West Texas Intermediate oil—a common benchmark—recently dropped below US$60 per barrel. Given every $1 drop in oil prices is an estimated $750 million hit to provincial revenues, if oil prices remain low for long, there could be big implications for Alberta’s budget.

The Smith government already projects a $5.2 billion budget deficit in 2025/26 with continued deficits over the following two years. This year’s deficit is based on oil prices averaging US$68.00 per barrel. While the budget does include a $4 billion “contingency” for unforeseen events, given the economic and fiscal impact of Trump’s tariffs, it could quickly be eaten up.

Budget deficits come with costs for Albertans, who will already pay a projected $600 each in provincial government debt interest in 2025/26. That’s money that could have gone towards health care and education, or even tax relief.

Unfortunately, this is all part of the resource revenue rollercoaster that’s are all too familiar to Albertans.

Resource revenue (including oil and gas royalties) is inherently volatile. In the last 10 years alone, it has been as high as $25.2 billion in 2022/23 and as low as $2.8 billion in 2015/16. The provincial government typically enjoys budget surpluses—and increases government spending—when oil prices and resource revenue is relatively high, but is thrown into deficits when resource revenues inevitably fall.

Fortunately, the Smith government can mitigate this volatility.

The key is limiting the level of resource revenue included in the budget to a set stable amount. Any resource revenue above that stable amount is automatically saved in a rainy-day fund to be withdrawn to maintain that stable amount in the budget during years of relatively low resource revenue. The logic is simple: save during the good times so you can weather the storm during bad times.

Indeed, if the Smith government had created a rainy-day account in 2023, for example, it could have already built up a sizeable fund to help stabilize the budget when resource revenue declines. While the Smith government has deposited some money in the Heritage Fund in recent years, it has not created a dedicated rainy-day account or introduced a similar mechanism to help stabilize provincial finances.

Limiting the amount of resource revenue in the budget, particularly during times of relatively high resource revenue, also tempers demand for higher spending, which is only fiscally sustainable with permanently high resource revenues. In other words, if the government creates a rainy-day account, spending would become more closely align with stable ongoing levels of revenue.

And it’s not too late. To end the boom-bust cycle and finally help stabilize provincial finances, the Smith government should create a rainy-day account.

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Alberta

Governments in Alberta should spur homebuilding amid population explosion

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From the Fraser Institute

By Tegan Hill and Austin Thompson

In 2024, construction started on 47,827 housing units—the most since 48,336 units in 2007 when population growth was less than half of what it was in 2024.

Alberta has long been viewed as an oasis in Canada’s overheated housing market—a refuge for Canadians priced out of high-cost centres such as Vancouver and Toronto. But the oasis is starting to dry up. House prices and rents in the province have spiked by about one-third since the start of the pandemic. According to a recent Maru poll, more than 70 per cent of Calgarians and Edmontonians doubt they will ever be able to afford a home in their city. Which raises the question: how much longer can this go on?

Alberta’s housing affordability problem reflects a simple reality—not enough homes have been built to accommodate the province’s growing population. The result? More Albertans competing for the same homes and rental units, pushing prices higher.

Population growth has always been volatile in Alberta, but the recent surge, fuelled by record levels of immigration, is unprecedented. Alberta has set new population growth records every year since 2022, culminating in the largest-ever increase of 186,704 new residents in 2024—nearly 70 per cent more than the largest pre-pandemic increase in 2013.

Homebuilding has increased, but not enough to keep pace with the rise in population. In 2024, construction started on 47,827 housing units—the most since 48,336 units in 2007 when population growth was less than half of what it was in 2024.

Moreover, from 1972 to 2019, Alberta added 2.1 new residents (on average) for every housing unit started compared to 3.9 new residents for every housing unit started in 2024. Put differently, today nearly twice as many new residents are potentially competing for each new home compared to historical norms.

While Alberta attracts more Canadians from other provinces than any other province, federal immigration and residency policies drive Alberta’s population growth. So while the provincial government has little control over its population growth, provincial and municipal governments can affect the pace of homebuilding.

For example, recent provincial amendments to the city charters in Calgary and Edmonton have helped standardize building codes, which should minimize cost and complexity for builders who operate across different jurisdictions. Municipal zoning reforms in CalgaryEdmonton and Red Deer have made it easier to build higher-density housing, and Lethbridge and Medicine Hat may soon follow suit. These changes should make it easier and faster to build homes, helping Alberta maintain some of the least restrictive building rules and quickest approval timelines in Canada.

There is, however, room for improvement. Policymakers at both the provincial and municipal level should streamline rules for building, reduce regulatory uncertainty and development costs, and shorten timelines for permit approvals. Calgary, for instance, imposes fees on developers to fund a wide array of public infrastructure—including roads, sewers, libraries, even buses—while Edmonton currently only imposes fees to fund the construction of new firehalls.

It’s difficult to say how long Alberta’s housing affordability woes will endure, but the situation is unlikely to improve unless homebuilding increases, spurred by government policies that facilitate more development.

Tegan Hill

Director, Alberta Policy, Fraser Institute

Austin Thompson

Senior Policy Analyst, Fraser Institute
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