From the Fraser Institute

By Tegan Hill and Milagros Palacios

The Smith government’s recent fiscal update sparked concerns as once again the province has swung from budget surpluses to a budget deficit. To balance the budget, Finance Minister Nate Horner has committed to address the spending side and will “look under every stone” before considering the revenue side, and this is the right approach. Alberta’s fiscal challenges are a spending problem, not a revenue problem.

For perspective, if program spending had grown by inflation and population over the past two decades, it would be $55.6 billion in 2025/26 rather than the actual $76.4 billion. So, while the Smith government has demonstrated important restraint in recent years, total program spending and per person (inflation-adjusted) program spending is still materially higher in 2025/26 than in previous periods.

Alberta’s high spending is fuelling the projected $6.5 billion deficit. Consider that at the alternative spending level ($55.6 billion) Alberta would be enjoying a large budget surplus of $14.4 billion in 2025/26—rather than adding to the province’s red ink.

Despite this, the discussion around deficits often revolves around volatile resource revenue (e.g. oil and gas royalties). It’s true—resource revenue has declined year over year and that has an impact on the budget. But again, it’s not the underlying problem. The problem is successive governments have increased spending during good times of relatively high resource revenue to levels that are unsustainable without incurring deficits when resource revenue inevitably declines. In other words, the fiscal framework for the provincial government relies too heavily on volatile resource revenues to balance its budget.

As a share of the economy, non-resource revenue (e.g. personal income and business income) averaged 12.5 per cent over the last decade (2016/17 to 2025/26) compared to 11.1 per cent between 2006/07 to 2015/16. In other words, Alberta is collecting a larger share of non-resource revenues than in the past as a share of the economy. This statistic alone makes it difficult to argue that the province has a revenue problem.

So, what can the government do to rein in its spending?

Government employee compensation typically accounts for nearly 50 per cent of the Alberta government’s operating spending. From 2019 to 2024, the number of provincial government jobs in Alberta increased by 46,500. Over that period, total compensation for provincial government jobs jumped from $24.2 billion to $29.5 billion. Put differently, government compensation now costs $5.3 billion more annually than pre pandemic. The government should reduce the number of government jobs back to pre-pandemic levels through attrition and a larger program review.

Business subsidies (a.k.a. corporate welfare) is another clear area for reform. Business subsidies consume a meaningful share of each ministries‘ annual budget costing billions of dollars. For example, in 2024/25, grants were the second-largest expense for the ministry of environment at $182.0 million and the largest expense for the ministry of arts, culture and status of women at $154.2 million. For the ministry of energy and minerals, grants totalled $166.3 million in 2024/25. With more than 25 ministries, the provincial government could find meaningfully savings by requiring that each to closely examine their budgets and eliminate business subsidies to yield savings.

The Smith government’s recent fiscal update rung the alarm bells, but to fix the province’s fiscal challenges, one must first understand the underlying problem—Alberta has a spending problem. Fortunately, there are some clear first steps to tackle it.