Alberta government must rein in spending to avoid future deficits

According to the recent year-end report, the Alberta government recorded a $4.3 billion surplus in 2023/24. And with more surpluses projected to 2026/27, it appears Alberta’s finances are on stable fiscal footing. Unfortunately, the provincial government’s past spending decisions may catch up with us.

To be clear, the Alberta government has introduced a rule to limit increases in operating spending (e.g. spending on annual items like government employee compensation) to the rate of population growth and inflation, which will produce a decline in per-person spending over the next several years.

That’s a positive step forward, particularly as the province’s current spending levels are much higher than stable predictable revenue. While most governments tend to go on a spending spree during times of relatively high resource revenue, like Alberta is currently experiencing, the Smith government has committed to some restraint.

But while the government is taking a step in the right direction, its previous spending increases since 2022 mean that it continues to rely on relatively high—but very volatile—resource revenue to balance its budget.
 
Indeed, according to this year’s provincial budget, program spending this year will reach $14,334 per Albertan, which is $1,603 more per person (inflation-adjusted) than the government originally planned to spend in the 2022 mid-year budget update, Smith’s first fiscal plan as premier.

In total, the Alberta government will spend a projected $6,037 more per Albertan (inflation-adjusted) over four years from 2023/24 to 2026/27 than it planned in the 2022 mid-year budget update.

Put simply, the government’s current plan to restrain spending by the rate of inflation and population growth is starting from a higher base level of spending. As a result, Alberta remains at risk of incurring a budget deficit when relatively high resource revenue declines.

For perspective, if resource revenue fell to its average over the last 10 years—rather than being at historic highs—the government’s $367 million projected surplus would immediately fall to a deficit of $7.4 billion.

By increasing per-person program spending over and above what it planned to spend in 2022, the government has made it harder to stabilize provincial finances and get taxpayers off the resource revenue rollercoaster. As a result, more work must be done to rein in spending and avoid deficits.