Danielle Smith's warning about major deficits in upcoming budget are the rule, not the exception, in Alberta
Alberta Premier Danielle Smith has warned of “significant” deficits in her upcoming budget on Thursday, with analysts forecasting a shortfall somewhere around $10 billion.
While Smith has made a point of warning voters about the red ink her United Conservative Party is about to spill, however, the projected deficit is hardly out of the ordinary. Alberta, despite its politicians’ tendency for loud proclamations in favour of fiscal restraint, has run budget shortfalls in all but five of its annual budgets over the last 18 years.
The repeated budget gaps underscore the unique budgeting pressures that have long plagued Alberta’s leaders—challenges that are likely to only grow in the face of volatile global oil prices and rising public services costs. At the same time, those pressures will put Alberta on shaky fiscal footing ahead of a potential independence referendum later this year.
Charles St-Arnaud, chief economist at Edmonton-based Servus Credit Union, said Alberta’s budget realities point to long-standing budget problems in the province that will leave the Smith government in a deep fiscal hole.
“It’s a difficult situation,” said St-Arnaud. “We are already starting a budget process that is wider than what we had expected a year ago.
Alberta is currently expecting to run a $6.4-billion deficit this year (2025-26), up from its initial projection of $5.2 billion. St-Arnaud expects this year’s budget (2026-27) to hit a deficit just shy of $10 billion, which is loosely in line with other forecasts.
After posting budget surpluses every year between 1997 and 2007 on the back of roaring oil prices, Alberta ran straight deficits from 2008 to 2020, with the exception of 2014. It returned to surplus for a few years before dipping back into the red in 2025, during Smith’s tenure.
Analysts say a number of factors are responsible for Alberta’s latest shortfall, from a dip in oil prices to rising immigration rates to the province’s lower tax structure. The extended period of deficits was also punctuated from major crises including the financial recession, 2015 oil price crash and global pandemic.
Smith has blamed much of her budget problems on the flood of newcomers that have come to the province in recent years, which the premier has said was a result of former prime minister Justin Trudeau’s relaxed immigration policies.
That has led to a rapid rise in costs for healthcare, education and other services, she said—a claim that St-Arnaud said is readily evident in the province’s skyrocketing spending levels. Expenses under Smith have ballooned from $60 billion in 2021-22 to $75 billion in the latest budget.
“Fiscal spending at the provincial level depends on population, and the population in Alberta has been growing by 4.5 per cent over the past two years or so,” St-Arnaud said. “That’s a big shock on demand for public services, whether it’s healthcare, whether it’s education.”
Another issue is volatile oil prices, which create major fluctuations in government revenues. St-Arnaud said that the Alberta government’s 2025-26 budget would have required oil prices to average around US$74 per barrel in order to cover costs. Instead, global prices hovered closer to around US$63 per barrel over the second half of the fiscal year.
While the value of Canadian oil has increased relative to global prices following the completion of the Trans Mountain pipeline, Alberta will remain locked in deficits if oil prices don’t increase or government spending doesn’t fall, St-Arnaud said.
“As long as oil is below that break-even threshold,” he said, “we’re going to continue to see budget shortfalls.”
As a result, bitumen and other royalties—or, tax revenues that the province derives from natural resources—slumped this year, down to $15.4 billion from $21.9 billion in 2024-25.
Jack Mintz, senior fellow at the C.D. Howe Institute, said that Alberta’s revenue problems are less troubling than the dramatic rise in government spending. The province is facing demands for higher spending not just in healthcare and education, he said, but in other areas like bigger subsidies for technologies such as carbon capture and storage.
Continued shortfalls will, in turn, increase the province’s overall debts which, at least for now, are getting issued at higher and higher interest rates.
“The new debt is getting more expensive, and as this (new debt) starts to weigh more heavily toward the overall debt this government has, the average interest rate is going to rise for that reason,” Mintz said.
In her recent televised address to Albertan voters, the Alberta premier said her government was trying to combat its budget issues by bulking up the province’s Heritage Fund, saying it would make the province “forever free from its over reliance on oil and gas revenues.” She also said she would aim to double its natural resource production, through her government’s proposed oil pipeline project to the B.C. coast, which doesn’t yet have any private sector backers.
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