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Trump’s oil tariffs could spell deficits for Alberta government

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From the Fraser Institute

By Tegan Hill

After recently meeting with president-elect Donald Trump, Premier Danielle Smith warned that Trump’s tariffs could include oil. That’s just one more risk factor added to Alberta’s already precarious fiscal situation, which could mean red ink in the near future.

Trump has threatened a 25 per cent tariff on Canadian goods, which includes oil, and could come as early as January 20 when he’s sworn in as president. Such tariffs would likely widen the price differential between U.S. West Texas Intermediate (WTI) crude oil and Alberta’s Western Canadian select (WCS) heavy oil.

In other words, the average price difference between Canadian oil (WCS) and U.S. oil (WTI) could increase, reflecting a larger discount on Canadian oil. According to the Alberta government’s estimate, every $1 that WCS is sold at discount is a $600 million hit to the government’s budget.

To maintain its $4.6 billion projected budget surplus this fiscal year (2024/25), the Smith government is banking on oil prices (WTI) averaging US$74.00 per barrel in 2024/25. But every $1 decline in oil prices leads to a $630 million swing in Alberta’s bottom line. And WTI has dropped as low as US$67.00 per barrel in recent months.

Put simply, Trump’s proposed tariffs would flip Alberta’s budget surplus to a budget deficit, particularly if paired with lower oil prices.

While Smith has been aggressively trying to engage with lawmakers in the United States regarding the tariffs and the inclusion of oil, there’s not much she can do in the short-run to mitigate the effects if Trump’s tariff plan becomes a reality. But the Smith government can still help stabilize Alberta’s finances over the longer term. The key is spending restraint.

For decades, Alberta governments have increased spending when resource revenues were relatively high, as they are today, but do not commensurately reduce spending when resource revenues inevitably decline, which results in periods of persistent budget deficits and debt accumulation. And Albertans already pay approximately $650 each in provincial government debt interest each year.

To its credit, the Smith government has recognized the risk of financing ongoing spending with onetime windfalls in resource revenue and introduced a rule to limit increases in operating spending (e.g. spending on annual items such as government employee compensation) to the rate of population growth and inflation. Unfortunately, the government’s current plan for restraint is starting from a higher base level of spending (compared to its original plan) due to spending increases over the past two years.

Indeed, the government will spend a projected $1,603 more per Albertan (inflation-adjusted) this fiscal year than the Smith government originally planned in its 2022 mid-year budget update. And higher spending means the government has increased its reliance on volatile resource revenue—not reduced it. Put simply, Smith’s plan to grow spending below the rate of inflation and population growth isn’t enough to avoid budget deficits—more work must be done to rein in high spending.

Trump’s tariffs could help plunge Alberta back into deficit. To help stabilize provincial finances over the longer term, the Smith government should focus on what it can control—and that means reining in spending.

Tegan Hill

Tegan Hill

Director, Alberta Policy, Fraser Institute

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Five key issues—besides Trump’s tariffs—the Carney government should tackle

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From the Fraser Institute

By Jake Fuss and Grady Munro

On Tuesday in Ottawa, Prime Minister Mark Carney unveiled his new cabinet, consisting of 28 ministers and 10 secretaries of state. They have their work cut out for them. In addition to President Trump’s trade war, the Carney government must tackle several other critical issues that have persisted since long before Trump was re-elected.

First and foremost, the Carney government should address stagnant living standards for Canadians. From the beginning of 2016 to the end of 2024, per-person GDP—a broad measure of living standards—grew by only 2.5 per cent in Canada compared to 18.7 per cent in the United States (all figures adjusted for inflation). While U.S. tariffs threaten to further reduce living standards in Canada, the marked decline began almost a decade ago.

There’s a similar gloomy story in worker incomes as Canadians continue to fall further behind their American counterparts. According to the latest data, median employment earnings (in Canadian dollars) in all 10 provinces ranked lower than in every U.S. state in 2022—meaning Americans in low-earning states such as Mississippi ($42,430), Louisiana ($43,318) and Alabama ($43,982) typically earned higher incomes than Canadians in the highest-earning province of Alberta ($38,969).

Why is this happening?

Part of the problem is the state of federal finances. Even Prime Minister Carney has criticized the Trudeau government’s approach to spending increases and debt accumulation, which diverts taxpayer dollars away from programs and towards debt interest payments, and burdens younger generations with higher taxes in the future. But unfortunately, according to Carney’s election platform, his government plans to borrow $93.4 billion more over the next four years compared to the Trudeau government’s last spending plan. The prime minister and his new cabinet should rethink this approach before tabling their first budget.

The Carney government should also cut taxes. Canadians in every province face higher combined (federal and provincial) personal income tax (PIT) rates than Americans in virtually every U.S. state across a variety of income levels. Canada’s PIT rates are similarly uncompetitive compared to other advanced countries. High taxes impose a burden on families, but they also make it harder for Canada to attract and retain high-skilled workers (e.g. doctors, engineers), entrepreneurs and investment, which drives economic growth and prosperity.

Finally, the Carney government should meaningfully address Canada’s housing affordability crisis. Housing costs have risen dramatically due to a significant gap between the demand for houses and the supply of housing units. In 2024, construction began on 245,367 new housing units nationwide while the population grew by 951,717 people due in part to one of the highest levels of immigration in Canadian history. This problem has been growing for decades—housing starts per year have remained stuck at essentially the same level they were in the 1970s while annual population growth has more than tripled. If policymakers want to help lower housing costs, they must reduce the imbalance between population growth and housing starts.

For the federal government, that means aligning immigration targets more closely to housing supply and rethinking policies that increase housing demand such as homebuyer tax credits and First Home Savings Accounts. Meanwhile, provincial and local governments should reduce red tape and construction costs to increase supply.

The Carney government has its work cut out for it. Besides U.S. tariffs, Canadians face several critical issues, which have persisted long before Trump was re-elected, and will continue unless something changes.

Jake Fuss

Director, Fiscal Studies, Fraser Institute

Grady Munro

Policy Analyst, Fraser Institute
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Washington Got the Better of Elon Musk

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The tech tycoon’s Department of Government Efficiency was prevented from achieving its full reform agenda.

It seems that the postmodern world is a conspiracy against great men. Bureaucracy now favors the firm over the founder, and the culture views those who accumulate too much power with suspicion. The twentieth century taught us to fear such men rather than admire them.

Elon Musk—who has revolutionized payments, automobiles, robotics, rockets, communications, and artificial intelligence—may be the closest thing we have to a “great man” today. He is the nearest analogue to the robber barons of the last century or the space barons of science fiction. Yet even our most accomplished entrepreneur appears no match for the managerial bureaucracy of the American state.

Musk will step down from his position leading the Department of Government Efficiency at the end of May. At the outset, the tech tycoon was ebullient, promising that DOGE would reduce the budget deficit by $2 trillion, modernize Washington, and curb waste, fraud, and abuse. His marketing plan consisted of memes and social media posts. Indeed, the DOGE brand itself was an ironic blend of memes, Bitcoin, and Internet humor.

Three months later, however, Musk is chastened. Though DOGE succeeded in dismantling USAID, modernizing the federal retirement system, and improving the Treasury Department’s payment security, the initiative as a whole has fallen short. Savings, even by DOGE’s fallible math, will be closer to $100 billion than $2 trillion. Washington is marginally more efficient today than it was before DOGE began, but the department failed to overcome the general tendency of governmental inertia.

Musk’s marketing strategy ran into difficulties, too. His Internet-inflected language was too strange for the average citizen. And the Left, as it always does, countered proposed cuts with sob stories and personal narratives, paired with a coordinated character-assassination attempt portraying Musk as a greedy billionaire eager to eliminate essential services and children’s cancer research.

However meretricious these attacks were, they worked. Musk’s popularity has declined rapidly, and the terror campaign against Tesla drew blood: the company’s stock has slumped in 2025—down around 20 percent—and the board has demanded that Musk return to the helm.

But the deeper problem is that DOGE has always been a confused effort. It promised to cut the federal budget by roughly a third; deliver technocratic improvements to make government efficient; and eliminate waste, fraud, and abuse. As I warned last year, no viable path existed for DOGE to implement these reforms. Further, these promises distracted from what should have been the department’s primary purpose: an ideological purge.

Ironically, this was the one area where DOGE made major progress. In just a few months, the department managed to dismantle one of the most progressive federal agencies, USAID; defund left-wing NGOs, including cutting over $1 billion in grants from the Department of Education; and advance a theory of executive power that enabled the president to slash Washington’s DEI bureaucracy.

Musk also correctly identified the two keys to the kingdom: human resources and payments. DOGE terminated the employment of President Trump’s ideological opponents within the federal workforce and halted payments to the most corrupted institutions, setting the precedent for Trump to withhold funds from the Ivy League universities. At its best, DOGE functioned as a method of targeted de-wokification that forced some activist elements of the Left into recession—a much-needed program, though not exactly what was originally promised.

Ultimately, DOGE succeeded where it could and failed where it could not. Musk’s project expanded presidential power but did not fundamentally change the budget, which still requires congressional approval. Washington’s fiscal crisis is not, at its core, an efficiency problem; it’s a political one. When DOGE was first announced, many Republican congressmen cheered Musk on, declaring, “It’s time for DOGE!” But this was little more than an abdication of responsibility, shifting the burden—and ultimately the blame—onto Musk for Congress’s ongoing failure to take on the politically unpopular task of controlling spending.

With Musk heading back to his companies, it remains to be seen who, if anyone, will take up the mantle of budget reform in Congress. Unfortunately, the most likely outcome is that Republicans will revert to old habits: promising to balance the budget during campaign season and blowing it up as soon as the legislature convenes.

The end of Musk’s tenure at DOGE reminds us that Washington can get the best even of great men. The fight for fiscal restraint is not over, but the illusion that it can be won through efficiency and memes has been dispelled. Our fate lies in the hands of Congress—and that should make Americans pessimistic.

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