'These are challenging times': Alberta projects $4.6B surplus, but falling oil prices could lead to deficit

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The Alberta government is forecasting a $4.6 billion surplus at the end of this fiscal year, though nearly half of that surplus won’t be available for spending, and officials warn the province could fall into deficit if oil prices don’t rebound.

The projections come in the province’s second-quarter fiscal update, delivered by Finance Minister Nate Horner on Thursday morning.

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“These are challenging times, but I believe Alberta is up to the challenge. By being intentional with every dollar, we can boost our prosperity and quality of life now and in the future,” he said in a news release.

He noted the surplus is higher than forecast in either of the last fiscal updates in August or February’s budget.

But he also cautioned there are “rising risks” of ongoing resource volatility, geopolitical instability, and continued strain on government spending that could lead the province to enter a deficit in the coming fiscal year, set to begin next April 1.

Here are some of the highlights from Horner’s Q2 update:

The bottom line(s)

The estimated $4.6 billion surplus is built largely on the back of just under $78 billion in revenue, or $4.4 billion more than projected in Budget 2024.

Non-renewable resource revenue is expected to be $1 billion more than budgetary projections, and personal income tax revenues are similarly expected to be $3 billion more than thought last February, largely due to higher bitumen royalties and the Trans Mountain pipeline expansion coming online.

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Operating expenses are now $1.2 billion higher than forecast in the budget, with $716 million of that coming from an increase in health service activities.

“Health care is getting more expensive and our population is getting older,” Horner said.

Calculations and adjustments mean only $2.9 billion of the forecasted surplus will be available to the government as cash, with $2.2 billion being retained by funds and agencies.

Taxpayer-supported debt is estimated at $84 billion at the end of this fiscal year, up $2.2 billion from the end of the last fiscal year, with the government citing “additional borrowing needs” for the increase.

The province is allocating $1.7 billion from its contingency fund this quarter, leaving just $279 million to address any additional future pressures.

Alberta NDP Leader Naheed Nenshi characterized the figures presented Thursday as “very troubling” and accused the government of frittering away multiple prior surpluses.

“Albertans are suffering. They don’t have the services they need, and there’s not going to be money in the bank to be able to solve the problems.”

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Oil prices, and a looming deficit?

The government is forecasting the price of West Texas Intermediate (WTI) to average US$74 per barrel.

However, department officials warned that the province could fall into a deficit in the coming fiscal year should those oil revenues drop below US$70 per barrel.

The price of oil averaged US$78 per barrel in the first six months of the 2024-’25 fiscal year, before falling throughout the summer, eventually sinking to below US$70 in September and reaching a low of US$65.75 per barrel on Sept. 9.

“What we’ve seen lately is actually a pretty stable place,” Horner said. “But if we’re heading towards a future where it’s sustained pressure downward, it will lead us to tougher questions.”

As of mid-morning Thursday, WTI was selling at just over US$69.

“If we’re in the mid-70s, it’s certainly a different question,” Horner said of oil prices and the likelihood of a deficit. “If we’re in the sub-70s it’s very likely.”

Nenshi pointed to the role of his predecessor in getting the Trans Mountain pipeline expansion constructed.

“The only thing that’s saving us from an even bigger deficit is the fact that the price differential between Alberta oil and world oil is slipping. And, the only reason that that’s dropping is because Rachel Notley got a pipeline built.”

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Population growth a continued mixed bag

The province noted more than 450,000 people have moved to Alberta in the last three years, and the population grew by 4.4 per cent in 2024.

While that migration is bolstering personal income tax revenue, it is also coincidentally straining government services.

Unemployment is forecast to rise as well, up to 7.4 per cent next year.

“When you have a 4.4 per cent population growth number, there’s just too many people to get tethered to the market.”

The province is projecting that population growth to slow slightly, down to 2.5 per cent in 2025 from the projected 3.2 per cent published in August, with the government projecting 62,500 fewer people coming to Alberta than initially thought.

“Moderating and then decreasing the population growth is a good thing,” Horner said.

“It will have impacts on the economy but also provide a lot of relief.”

mblack@postmedia.com

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