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Opinion: Will this week’s budget break Alberta’s fiscal rules again?

With oil prices down and a balanced-budget requirement looming, will the Smith government cut spending growth or kick the can down the road?

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Alberta’s 2026-27 budget comes down Thursday. The province has balanced-budget legislation, albeit with some exceptions, and is legally required to present a credible three-year plan to reach balance by 2028-29. Minister of Finance Nate Horner may well present a plan, but will be it credible?

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Some cold, hard fiscal facts confront the government in the run-up to Budget 2026. Crude oil prices are now projected to average US$5-$10 less per barrel over the next three years than projected in last year’s budget. As a result, total revenues are expected to grow by about 3.8 per cent per year over the next three years, rather than the 6.9 per cent experienced between 2022-23 and 2024-5. That will leave a status quo fiscal gap of roughly $10.6 billion in 2026-27, $8.6 billion in 2027-28 and $7.9 billion in 2028-29.

Opinion: Will this week’s budget break Alberta’s fiscal rules again? Back to video

Alberta’s legislated fiscal rules allow budget deficits of about $6.6 billion and $1.9 billion over the next two years but require a return to balance in 2028-29. Living by the rules would therefore require fiscal tightening of up to $4 billion, $6.7 billion and $7.9 billion in over the next three fiscal years — a tall order.

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In light of these sobering numbers, the government needs to deliver a pivotal budget on Thursday. Major revenue diversification, such as a provincial sales tax or increases to personal and corporate income tax probably aren’t on the table, but sizeable increases to fees and licences, including applying “user pay” principles to more government programs and services, should be.

The majority of the required fiscal tightening should occur with operating expenses, however, even in the politically sensitive areas of health care, education and social services. That means increased means testing, more stringent eligibility requirements for programs and services, and further reforms in health care.

At the same time, portions of the government’s current $26-billion capital plan should be pushed into future years by redesigning projects to lower their costs and extend their completion time. Doing so could provide an estimated $350-$500 million per year in additional budget flexibility.

There is a danger, though, that the minister of finance will bend to political pressure and try to “kick the can down the road.” One way to do that would be raise the annual contingency allowance yet again. It was initially created to address unanticipated spending but it has risen from $1 billion in 2022-23 to $4 billion this fiscal year and the rules governing its use have been relaxed. It has effectively become a safety valve to allow new spending initiatives the government decides it needs to make, invariably for political reasons, over the course of the fiscal year.

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The Smith government also seems likely to continue to bet heavily on increasing oil revenues and could present more optimistic forecasts of oil sands/raw bitumen production than current private-sector projections. These more bullish assumptions would mean bitumen royalties could rise by an estimated $350 million in 2027-28 and $2.6 billion in 2028-29.

“Can-kicking” might also mean raiding the Heritage Fund at some point and moving the up to $1.5 billion in income it generates annually over to general revenues by suspending the section of the Heritage Fund Act that requires such income to stay in the fund. It has been done before, back in 1983. That would help with today’s budget but would obviously jeopardize the government’s goal of increasing the Heritage Fund to $250 billion or more by 2050.

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Of course, the government could also — at some political cost, admittedly — suspend its legislated fiscal rules and give itself greater “budget flexibility.” It wouldn’t be the first Alberta government to introduce loopholes or temporary suspensions to make life easier for itself.

With a provincial election just over a year away, don’t be surprised if the government tries to play it both ways in Budget 2026. A smidgeon of “pivotal measures” and a dash of “kick the can down the road.” Will the end-product be a satisfying mixture? Albertans will be watching closely.

 Lennie Kaplan spent over two decades in the public service of Alberta.

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