Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Alberta’s Finance Minister Nate Horner presented the Budget 2025 as prudent overall. The economic assumptions that underpin the fiscal project are balanced. Nevertheless, due to the negative impact tariffs will have on Alberta’s economy, the province is expected to show a deficit of $5.2bn in FY2025-26. Once again, revenue on royalties on non-renewable resources is the biggest source of revenue shortfall, underpinning that the sector continues to dictate the fiscal situation in the province.
The government also announced the implementation of the tax cuts it promised during the last election campaign. It is estimated that individuals earning more than $60,000 will save about $750 in tax, $1500 for a family. This will provide some support to Albertans which have seen a bigger decline in their purchasing power than other Canadians in recent years (see Where’s the boom? And the rise and fall of the Alberta Advantage). Moreover, given the headwinds to growth in 2025, this extra income could help support spending. However, the tax cut comes at the expense of a wider deficit or about $1.2bn.
Alberta’s Finance Minister, Nate Horner, the 2025 Budget showing a projected deficit of $5.2bn for FY2025-26. This would be the first deficit since the pandemic and follows an estimated surplus of $5.8bn in FY2024-25. Moreover, the province is expected to remain into deficit until FY2027-28.
The sharp deterioration in the fiscal situation is mainly due to the impact of the US tariffs (see US tariffs: A death by a thousand cuts and The US imposes tariffs on Canada. What’s next? for our views on the tariffs). As a result, economic growth in 2025 is expected to be 1.8% and 1.7% in 2026 and the unemployment rate is expected to increase to 7.4% this year. In comparison, GDP growth was expected at 2.7% and the unemployment rate at 6.0% for 2025 in last November’s fiscal update.
The other big changes to the economic forecast are that oil prices are expected to be $68 for WTI in 2025, compared to $74 in 2024. Moreover, the price differential is expected to widen somewhat to $17.10 from $13.2 this fiscal year. This results in a WCS prices in Canadian dollar that is more than $10 lower than what we saw in FY2024-25.
As a result of the changes to the economic outlook, fiscal revenues are expected to decline to $74.1bn, after projected revenues of $80.7bn in FY2024-25. Most of the reduction in revenues is due to a drop in royalties, to $17.1bn from $21.5bn.
In addition, the introduction of a new tax bracket and the weaker economic outlook mean that income tax revenues, both personal and corporate, are expected to ease to $22.3bn from $25.5bn in FY2024-25.
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Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.