Alberta's Budget Faces Deep Cuts as Low Oil Prices Drain Revenue
Alberta's provincial budget continues to ride a volatile resource royalty roller-coaster, with oil prices remaining a dominant revenue driver for the government. However, persistently subdued North American crude prices are carving a massive hole in the province's financial plans, leading to substantial projected deficits over the coming years.
The Price Forecast and Its Impact
North American oil is currently trading at approximately US$65 per barrel, but Alberta's budget forecasts paint a weak outlook for crude. The province anticipates this trend will continue for years, with global markets experiencing an oversupply of oil and insufficient buyer demand. According to budget projections, oil prices will average around US$60.50 per barrel this year and in 2027. A modest recovery is expected next year, potentially lifting prices to more than US$67 per barrel by the 2028-29 fiscal year.
Even with this anticipated increase, prices would remain significantly below what previous Alberta budgets had predicted, creating ongoing fiscal challenges for the government.
Direct Consequences for Provincial Finances
Alberta's budget is intricately linked to oil price fluctuations, and lower crude prices directly translate to reduced government spending capacity. Royalties paid by oil and gas companies on their production continue to be a major component of Alberta's revenue stream. For the current year, every single dollar that oil prices drop below the forecasted price would remove approximately $680 million from the province's bottom line.
This substantial sensitivity highlights the enormous stakes involved. The challenges presented by lower crude prices extend beyond just diminished royalty revenues. They also result in decreased overall incomes and corporate profits throughout the province. Budget documents indicate that one measure of corporate profits is expected to decline by three percent this year before potentially rebounding in 2027.
This downturn is problematic both for the broader economy and for a government that relies heavily on corporate tax revenue to fund its operations.
Projected Deficits and Revenue Shortfalls
With oil prices consistently below the threshold required to balance the budget—which ranges from US$74 to US$77 per barrel over the next two years—Premier Danielle Smith's government faces significant obstacles in bringing spending back into equilibrium. The province is forecasting deficits of $9.4 billion, $7.6 billion, and $6.9 billion over the next three fiscal years, largely driven by the oil price situation.
Non-renewable resource revenues are projected to constitute around 18 percent of Alberta's total revenue in the upcoming two years, amounting to $13.2 billion. This represents a substantial portion of the provincial budget. However, due to sagging oil prices, these revenues have already experienced a sharp decline in recent years. They have fallen by 19 percent since the 2024-25 fiscal year, when $16.3 billion was forecast.
The combination of lower royalty income and reduced corporate tax revenue creates a perfect storm for Alberta's finances, forcing difficult decisions about spending priorities and fiscal management in the years ahead.
