According to the Smith government’s 2026 budget released Thursday, amid weak oil prices, the government will run a staggering $9.4-billion budget deficit this fiscal year following the $4.1-billion deficit forecasted for 2025-26. And the government projects deficits until 2028-29 — despite its “fiscal framework” prohibiting deficits for more than three fiscal years in a row.

First, a bit of context.

HILL: Smith government continues on resource revenue rollercoaster with $9.4 billion budget deficit Back to video

The government flipped from an $8.3-billion budget surplus in 2024-25 to a $4.1-billion budget deficit in 2025-26. This swing in fiscal fortunes corresponded with a drop in oil prices — it’s estimated every $1 drop in oil prices is a $680-million hit to Alberta’s bottom line.

Revenues follow oil prices

Oil prices have fallen from US$74.34 per barrel in 2024-25 to a projected US$60.50 per barrel this upcoming fiscal year (2026-27). Correspondingly, resource revenue has fallen from $22 billion in 2024-25 to a projected $13.2 billion this fiscal year. For perspective, if resource revenues were at their 2024-25 levels, Alberta’s budget would nearly be balanced.

This shouldn’t come as a shock to Albertans; this story is all too familiar. When governments use one-time volatile resource revenue to finance permanently higher spending, as successive Alberta governments have done, deficits emerge when the good times stop. We’ve routinely warned that while the Smith government has shown some spending restraint in recent years, after decades of spending growth, levels are still too high to avoid deficits during periods of relatively low resource revenue.

And this comes with real costs for Albertans. Deficits fuel debt accumulation and the Alberta government’s net debt (total debt minus financial assets) will reach a projected $51.4 billion this fiscal year (2026-27). Consequently, projected debt interest costs will reach $3.4 billion or $670 per Albertan. Every dollar that goes towards financing government debt is a dollar unavailable for services such as health care and education, or to create fiscal room for tax relief.

The government’s fiscal framework, introduced in 2023-24, mandates that it must return to a balanced budget within three years. But there’s no consequence for non-compliance. In fact, the government — or any future government — can ignore, change or eliminate this rule at any time — as the Smith government has demonstrated in Thursday’s budget.

If the Smith government truly wants to set Alberta on a new path, it must reduce spending. For starters, it should eliminate waste such as business subsidies (a.k.a. corporate welfare), which the Alberta government spends billions on annually but does little if anything for widespread economic growth. And it should review and reduce employee compensation, which accounts for roughly 50% of the government’s total operating spending. For perspective, government-sector job growth (federal, provincial, local) in Alberta grew by 17.9% from 2015 to 2024 while private-sector job growth was 10% — and total compensation for provincial government jobs has markedly increased in recent years.

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The Smith government is staring at a large deficit this fiscal year with more debt accumulation on the way. Premier Smith has made some strides in an attempt to stabilize provincial finances, but it’s simply not enough to get Alberta off the resource revenue rollercoaster. Instead, the government must meaningfully reduce spending.

Tegan Hill is director of Alberta policy at the Fraser Institute.

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