Alberta’s resource revenue rollercoaster continues with $2.0 billion projected surplus

According to its latest fiscal update, the Alberta government’s $9.4 billion projected budget deficit in 2026/27 has flipped to a $2.0 billion surplus. However, the fiscal turnaround is almost entirely due to higher energy prices, which means the government’s next steps will be crucial.

In other words, the government experienced an $11.4 billion fiscal turnaround compared to its original projection. The single largest contributor—by far—was higher resource revenue (up $9.7 billion) fuelled by the war in Iran, which pushed up oil prices (for perspective, higher business income tax revenue was the next largest contributor to the fiscal turnaround, up $545 million). Indeed, oil prices averaged US$93.00 per barrel over the first quarter while the budget projected prices to average US$60.50 this fiscal year.

Clearly, oil prices are unpredictable and outside of the government’s control. And while the Smith government has benefited from windfall resource revenue for the past several years, it must be very careful about what it does with the additional onetime revenue.

In the past, provincial governments in Alberta have spent resource revenue almost as quickly as it came in the door, which led to boom/bust cycles in provincial finances where the government enjoyed periods of budget surpluses during good times but then inevitably returned to deficits when commodity prices declined. This cycle has contributed to the government’s $40.3 billion net debt (total debt minus financial assets) burden, which will cost a projected $625 per Albertan just to finance the debt during this fiscal year.

Finance Minister Nixon has recognized this problem, promising that his government would not repeat past mistakes by accelerating spending with temporary increases in resource revenue. That is the most important step—holding the line on spending.

And while the government currently remains in a negative cash position—meaning there’s no cash surplus available for various reasons (e.g. differences in when royalties are recognized in the budget versus actually received)—it must be judicious if and when a cash surplus does arise.

That means using the money to pay down some of Alberta’s debt and/or invest in Alberta’s long-term resource revenue savings fund, the Heritage Fund. The former would help reduce Alberta’s costly debt interest payments while the latter would turn a onetime volatile revenue source into a long-term financial asset that can generate money for Albertans into the future. Either option will provide longer-term benefits for Albertans and avoid fuelling the resource revenue rollercoaster.

With another windfall, let’s hope Finance Minister Nixon sticks to his word. First and foremost, that means holding the line on spending, and second, using any cash surplus to pay down debt or invest in the Heritage Fund.