By Kris Sims 

The Canadian Taxpayers Federation is applauding the Alberta government for giving Albertans a huge income tax cut in Budget 2025, but is strongly warning against its dive into debt by running a deficit.

“Premier Danielle Smith keeping her promise to cut Alberta’s income tax is great news, because it means huge savings for most working families,” said Kris Sims, CTF Alberta Director. “Families are fighting to afford basics right now, and if they can save more than $1,500 per year thanks to this big tax cut, that would cover a month’s rent or more than a month’s worth of groceries.”

Finance Minister Nate Horner announced, effective this fiscal year, Alberta will drop its lowest income tax rate to eight per cent, down from 10 per cent, for the first $60,000 of earnings.

The government estimates this income tax cut will save the average Alberta worker about $750 per year, or more than $1,500 per year for a two-person working family.

Albertans earning less than $60,000 a year will see a 20 per cent reduction to their annual provincial income tax bill.

The budget also contained some bad news.

The province is running a $5.2 billion deficit in 2025-26 and the government is planning to keep running deficits for two more years.

Total spending has gone up from $73.1 billion from last budget to $79.3 billion this year, an increase of 8.4 per cent.

“If the government had frozen spending at last year’s budget level, the province could have a $1 billion surplus and still cut the income tax,” said Sims. “The debt is going up over the next few years, but we caught a lucky break with interest rates dropping this past year, so we aren’t paying as much in interest payments on the debt.”

The province’s debt is now estimated to be $82.8 billion for 2025-26.

Interest payments on the provincial debt are costing taxpayers about $2.9 billion, about a 12 per cent decrease from last year.

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: