Alberta Budget 2025: Fiscal Deep Dive
In-depth fiscal analysis of Alberta Budget 2025 covering revenue assumptions, expenditure drivers, the $5.2B deficit trajectory, and debt outlook through 2027-28.
The Fiscal Picture
Alberta's Budget 2025 presents the starkest fiscal reversal since the pandemic. The province swings from a $5,760 million surplus in 2024-25 to a $5,211 million deficit in 2025-26 — a one-year deterioration of nearly $11 billion (Fiscal Plan, p.17). This section examines the structural drivers, assumptions, sensitivities, and trajectory.
Revenue Analysis: Where Did $6.6 Billion Go?
Total revenue falls from $80,692 million (2024-25 forecast) to $74,138 million (2025-26 estimate). The decline decomposes into five major components:
Bitumen Royalties: -$4,029 Million
The single largest revenue hit. Bitumen royalties fall from $16,859 million to $12,830 million — a 23.9 per cent decline. This is driven by two factors:
- Lower oil prices: WTI drops from US$74 to US$68/bbl
- Wider differential: The WCS differential widens from US$13.20 to US$17.10/bbl, reflecting tariff uncertainty and pipeline economics
The net WCS price in Canadian dollars falls from $84.70 to $73.10/bbl — a $11.60/bbl decline that directly impacts royalty collections. Production volumes provide a partial offset, with raw bitumen production rising from 3,455 to 3,558 thousand barrels per day (Fiscal Plan, Economic Outlook, p.21).
Investment Income: -$2,289 Million
Investment income falls from $5,171 million to $2,882 million — a 44.3 per cent decline. This reflects anticipated lower returns on the Heritage Fund and other provincial investments, with equity market uncertainty and lower interest rates compressing portfolio returns.
Personal Income Tax: -$610 Million
PIT declines from $16,120 million to $15,510 million, primarily due to the new 8 per cent tax bracket reducing revenue by approximately $1.2 billion annually. This is partially offset by wage and employment growth contributing additional tax base.
Corporate Income Tax: -$587 Million
CIT falls from $7,351 million to $6,764 million as the tariff scenario and softer economic outlook reduce corporate profitability. Net corporate operating surplus is forecast to decline 9.0 per cent in 2025 (Fiscal Plan, Economic Outlook, p.21).
Partial Offsets
Federal transfers increase $329 million to $13,287 million, driven by Canada Health Transfer and Canada Social Transfer growth and Alberta's rising share of the national population. Other taxes increase $568 million to $6,563 million.
Revenue Sensitivities: The Risk Magnifiers
Budget 2025 publishes sensitivities that reveal the province's exposure (Fiscal Plan, Revenue, p.63):
| Variable | Change | Revenue Impact |
|---|---|---|
| WTI oil price | -US$1/bbl | -$750 million |
| Light-heavy differential | +US$1/bbl | -$740 million |
| Exchange rate | +1 US¢/CAD | -$560 million |
| Interest rates | +1% | -$277 million |
| Primary household income | -1% | -$200 million |
| Natural gas price | -$0.10/GJ | -$5 million |
The oil price sensitivity is the critical number. At -$750 million per dollar, a further US$7/bbl decline in WTI (to US$61) would add another $5.25 billion to the deficit — potentially exceeding $10 billion in a single year. The exchange rate sensitivity of -$560 million per cent is also significant, as a tariff-induced weakening of the Canadian dollar has complex cross-cutting effects.
Expenditure Analysis: Disciplined but Growing
Total expense rises from $74,932 million to $79,349 million — an increase of $4,417 million (5.9 per cent). However, the composition matters.
Operating Expense: The Fiscal Anchor Holds
Operating expense grows 3.6 per cent to $64,311 million, compared to the fiscal framework ceiling of population growth plus inflation at 7.3 per cent (Fiscal Plan, p.17). The government is meeting its fiscal anchor, though the gap is narrower than in recent years.
The main operating expense drivers:
- Health: +$122 million in operating, plus $200 million in inventory consumption
- Education: +$426 million (4.5%), driven by enrolment growth
- Seniors, Community and Social Services: significant increase including $258 million (26%) rise in Employment and Income Support
- Mental Health and Addiction: +$64 million for compassionate intervention framework and recovery communities
Contingency: The Wildcard
The contingency doubles from $2,017 million to $4,000 million. This single line item accounts for nearly half of the total expense increase. The government identifies three primary uses: tariff implications, collective bargaining outcomes, and disaster response. If these pressures prove lower than anticipated, the contingency provides substantial downside cushion to the deficit projection.
Conversely, if contingency is fully consumed, total expense could reach the projected $79.3 billion. If tariff impacts exceed the baseline assumption, even $4 billion may prove insufficient.
Debt Servicing: A Brief Reprieve
Debt servicing costs actually decline $231 million to $2,968 million, reflecting lower interest rates and prior debt repayment. This reprieve is temporary — debt servicing rises to $3,258 million in 2026-27 and $3,629 million in 2027-28 as new borrowing accumulates.
Deficit Trajectory and Return to Balance
The fiscal framework requires a return to balanced budgets within three years of reporting a deficit at year-end. The planned trajectory:
| Year | Surplus/(Deficit) | Revenue | Expense |
|---|---|---|---|
| 2024-25 (Forecast) | $5,760M | $80,692M | $74,932M |
| 2025-26 (Estimate) | ($5,211M) | $74,138M | $79,349M |
| 2026-27 (Target) | ($2,428M) | $77,390M | $79,818M |
| 2027-28 (Target) | ($2,047M) | $79,969M | $82,016M |
Notably, even by 2027-28 the budget does not project a return to balance. Revenue grows from $74.1 billion to $80.0 billion (+7.9%), while expense grows from $79.3 billion to $82.0 billion (+3.4%). The deficit narrows but does not close, raising questions about whether the return-to-balance requirement can be met within the fiscal framework's three-year window.
The implicit assumptions for deficit reduction: oil prices firming to US$71.50/bbl, population growth moderating to reduce service pressures, contingency declining from $4.0 billion to $3.7 billion, and operating expense growth averaging just 1.7 per cent per year.
Debt Outlook: A Structural Shift
The debt trajectory represents the most significant structural change in Budget 2025:
| Metric | 2024-25 | 2025-26 | 2026-27 | 2027-28 |
|---|---|---|---|---|
| Taxpayer-supported Debt | $85,400M | $82,800M | $90,100M | $98,400M |
| Net Financial Debt | $36,600M | $43,000M | $46,500M | $49,900M |
| Net Debt-to-GDP | 7.6% | 8.7% | 9.0% | 9.3% |
| Heritage Fund Balance | $23,400M | $24,400M | $25,700M | $27,100M |
Taxpayer-supported debt rises from $82.8 billion to $98.4 billion by 2027-28 — an increase of $15.6 billion over three years. Net debt-to-GDP climbs from 7.6 per cent to 9.3 per cent, approaching (but remaining well below) the levels seen in other provinces (Fiscal Plan, Overview, p.8).
After repaying $13.4 billion in debt during 2022-23 and $3.2 billion in 2023-24, the province now re-enters a borrowing cycle. No surplus cash is forecast for debt repayment after 2024-25 (Fiscal Plan, p.63).
The Heritage Fund continues to grow modestly, reaching $27.1 billion by 2027-28, supported by $1 billion in surplus cash allocation from 2024-25 and investment returns.
Economic Assumptions: The Tariff Variable
The economic outlook is dominated by tariff uncertainty. Key assumptions for 2025:
- Real GDP growth: 1.8 per cent (down from 3.0 per cent in 2024), recovering to 2.1-2.2 per cent by 2027-28
- Employment growth: 1.9 per cent (down from 3.1 per cent), with unemployment at 7.4 per cent
- Housing starts: 43,000 units (down from 47,800), reflecting the economic slowdown
- Nominal GDP: $482.5 billion, growing just 1.2 per cent
The tariff assumption is the most consequential variable. The budget assumes a "moderate trade conflict" with 15 per cent tariffs on goods and 10 per cent on energy, with Canadian retaliation. If tariffs escalate beyond this or persist longer, the economic and fiscal impacts would be substantially worse. Conversely, a de-escalation would improve the outlook materially.
Natural gas provides one bright spot: prices are forecast to recover from $1.20/GJ to $2.50/GJ in 2025-26, though the revenue sensitivity is modest at just $5 million per $0.10/GJ change.
Fiscal Framework Assessment
The Sustainable Fiscal Planning and Reporting Act sets the rules:
- Operating expense ceiling: growth limited to prior-year population plus inflation — met (3.6% vs 7.3% ceiling)
- Deficit allowance: permitted when revenue drops $1 billion or more — triggered ($6.6 billion revenue decline)
- Return to balance: within three years of year-end deficit — not yet demonstrated (2027-28 still shows deficit)
- Surplus cash allocation: 50% to Heritage Fund or debt repayment, 50% to Alberta Fund — modified by proposed amendments
The framework is being amended to provide more flexibility in surplus cash allocation between Heritage Fund contributions and debt repayment. This is a pragmatic adjustment given the absence of surplus cash in the projection period.
Net Assessment
Budget 2025's fiscal position is significantly weaker than recent years but remains manageable by Canadian provincial standards. The operating expense discipline is genuine — the fiscal anchor holds. The revenue side tells the challenging story: Alberta remains structurally exposed to oil price and exchange rate volatility, and the decision to cut income taxes by $1.2 billion annually during a period of declining resource revenue is a deliberate fiscal trade-off.
The key fiscal risks are: (1) oil prices declining below US$68 (sensitivity: -$750M per dollar); (2) tariffs escalating beyond the baseline 15 per cent; (3) collective bargaining outcomes consuming the contingency; and (4) the inability to return to balance within the three-year window. The province has fiscal buffers — the Heritage Fund, a strong debt-to-GDP ratio relative to peers, and the $4 billion contingency — but the margin for error has narrowed considerably.
Evidence basis: All figures sourced from the Fiscal Plan 2025-28, including the Economic Outlook, Revenue, Expense, Fiscal Framework, and Debt and Capital Plan sections, published February 27, 2025.