Alberta's 2026-27 Budget: A Critical Test of Fiscal Discipline
Alberta's 2026-27 budget, set to be unveiled this Thursday, represents a pivotal moment for the province's financial future. With a provincial election just over a year away, Finance Minister Nate Horner and Premier Danielle Smith face mounting pressure to navigate challenging fiscal waters while adhering to legislated balanced-budget requirements.
The Fiscal Reality: Declining Oil Revenues
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 anticipated in last year's budget projections. This significant decline translates to a substantial reduction in expected revenue growth.
Total revenues are now expected to grow by approximately 3.8 percent annually over the next three years, a dramatic slowdown from the 6.9 percent growth experienced between 2022-23 and 2024-25. This revenue shortfall creates what analysts describe as 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.
Balanced-Budget Legislation: Loopholes and Challenges
Alberta's legislated fiscal rules present both constraints and opportunities for the government. The current framework allows budget deficits of approximately $6.6 billion and $1.9 billion over the next two fiscal years but mandates a return to balance by 2028-29. Adhering strictly to these rules would require substantial fiscal tightening—up to $4 billion, $6.7 billion, and $7.9 billion over the next three fiscal years respectively.
This represents a tall order for any government, particularly one facing an election cycle. The question becomes whether Minister Horner will present a credible three-year plan to achieve balance or whether political considerations will lead to creative accounting and rule-bending.
Potential Solutions: Revenue and Spending Adjustments
In light of these sobering numbers, the government needs to deliver a pivotal budget on Thursday. While major revenue diversification measures—such as implementing a provincial sales tax or increasing personal and corporate income taxes—likely remain off the table, other options exist.
Sizeable increases to fees and licenses represent one potential avenue, including applying user pay principles to more government programs and services. However, the majority of required fiscal tightening will need to come from operating expenses, even in politically sensitive areas like health care, education, and social services.
This could mean:
- Increased means testing for government programs
- More stringent eligibility requirements for services
- Further reforms in the health care system
Capital Plan Adjustments and Creative Accounting
Another potential strategy involves adjusting the government's current $26-billion capital plan. By redesigning projects to lower costs and extend completion timelines, portions of this spending could be pushed into future years. Analysts estimate this approach could provide $350-$500 million annually in additional budget flexibility.
However, there exists a significant danger that the finance minister will bend to political pressure and attempt to kick the can down the road. One method for doing so would involve raising the annual contingency allowance yet again. Initially created to address unanticipated spending, this allowance has ballooned from $1 billion in 2022-23 to $4 billion in the current fiscal year, with rules governing its use becoming increasingly relaxed.
Optimistic Projections and Heritage Fund Considerations
The Smith government appears likely to continue betting heavily on increasing oil revenues, potentially presenting more optimistic forecasts of oil sands and raw bitumen production than current private-sector projections suggest. More bullish assumptions could mean bitumen royalties rising by an estimated $350 million in 2027-28 and $2.6 billion in 2028-29.
Another form of can-kicking might involve raiding the Heritage Fund. By suspending the section of the Heritage Fund Act that requires investment income to remain in the fund, the government could redirect up to $1.5 billion annually to general revenues—a move last taken in 1983. While this would provide immediate budget relief, it would jeopardize the government's stated goal of growing the Heritage Fund to $250 billion or more by 2050.
As Budget Day approaches, Albertans await to see whether their government will make difficult choices to maintain fiscal discipline or employ creative accounting to delay tough decisions until after the next election.
