Shot to the budget

By Lethbridge Herald on August 29, 2025.

Al Beeber
Lethbridge Herald

A substantial decline in natural resources revenue is a contributing factor to a projected increase in the provincial deficit for 2025-26.

A first-quarter economic update provided by the government on Thursday morning projects the 2025-26 deficit will hit $6.5 billion, which is up $1.3 billion from the 2025 budget forecast. A 38 per cent decline in natural resources revenues, which are forecast to be $15.7 billion this year, is considered to be the most significant factor in the higher deficit.

Natural resources revenue reached a peak of $25.2 billion in 2022-23.

Total revenue for 2025-26 is forecast to be $73 billion, $1.2 billion lower than the budget estimate.

Total expenses are expected to be $79.4 billion, up $100 million which the government says reflects $95 million in expenses offset by dedicated revenue. The operating expense is forecast to be $65  billion, up $679 million from the budget, which the government says is primarily due to an increase in wage growth in the public sector.

The province says Alberta is also facing pressure from a growing population, which is expected to increase by 2.4 per cent this year. Other factors coming into play include the threat of American tariffs, lower oil prices and slowing global growth.

The province is also experiencing a high unemployment rate of 7.2 per cent while employment growth is only expected to be 2.5 per cent. 

That said, the unemployment rate is lower than the 7.4 per cent predicted in the 2025 budget, according to a government official who couldn’t be attributed in a media briefing, but it’s still higher than last year.

The real gross domestic product is expected to grow by two per cent in the fiscal year, which the government says will lead Canada.

The province says that consumer spending is higher than expected while drilling activity, oil production and exports have increased. It also notes that 90 per cent of Alberta energy exports are exempt from tariffs.

Taxpayer-supported debt amounts to $84.3 billion, up $1.7 billion from the 2025 budget, and debt servicing costs are $3 billion, an increase of $37 million from the budget.

Of the $4 billion contingency set aside in the 2025 budget, $1.5 billion has been allocated. Of that, $706 million is for disaster response while $752 million covers operating expenses, capital  projects and debt servicing costs.

The economic update shows that non-renewable resource revenue is down  $1.4 billion from the budget due primarily to lower prices for crude  oil and a stronger Canadian dollar. That drop is partially offset by a narrower light-heavy differential which the governments says increases the price of Canadian heavy crude oil compared to the price of a barrel of lighter West Texas intermediate.

Income tax revenue is down $0.3 billion from budget expectations because of lower-than expected 2024 personal income tax assessments. Corporate income tax revenue, however, has increased. Lower tobacco and fuel tax revenue are responsible for other tax revenue being down $12 million from budget, which the province says is partially offset by higher cannabis tax revenue and other taxes.

Federal transfers have increased $125 million from the budget due mostly to $25 million for the National School Food Program, $5 million for the Federal Aging with Dignity program, carryover of unspent investing in Canada Infrastructure Program funds and other minor transfers.

Operating expenses are up $679 million from the budget. A list provided by the government shows those to include:

$647 million increase for increases related to compensation for ratified agreements and to support ongoing collective bargaining with various unions.

* $54 million increase for federally funded Aging with Dignity  initiative to enhance seniors’ care.

* $25 million increase to provide meals to Canadian children beyond  existing school fund programs.

The Alberta Heritage Savings Trust in the first quarter of 2025 earned a 1.7 per cent return and recorded net investment income of $344 million. As of June 30, the fair value of the fund’s net financial assets was $27.6 billion.

The budget framework sets policies for the allocation of surplus cash  to improve the province’s net financial position but because of the  deficit no surplus cash is available for allocation.

A media briefing was told that “external forces continue to have a major impact on our province and in particular the situation in the United States. Since our budget forecast, U.S. trade policy has continued to evolve. Our budget forecast took a cautious approach by incorporating the potential impact of 15 per cent tariffs on most Canadian goods and 10 per cent on energy products along with Canadian retaliatory tariffs on a broad range of consumer goods.”

The government official said tariffs that have materialized on Canada have been less severe than anticipated with the majority of Alberta exports being compliant under the CUSMA agreement.

“The effect of U.S. Tariff rate on Alberta sits at around three per  cent, the lowest among provinces,” media were told.

Alberta is relatively less exposed to American tariffs on steel, aluminum and automobiles compared to other provinces, the official said.

The planned removal of all Canadian tariffs on U.S. goods covered  under CUSMA effective Sept. 1 should help lessen the impact of tariffs on the Alberta economy moving forward, the official said.

Strong activity in the energy sector is helping to offset weakness in the manufacturing and agriculture sectors “which are facing some trade-related headwinds,” said the official.

Construction activity has remained strong, buoyed by the elevated pace  of housing starts and “strong investment in the industrial and public  sectors.”

Consumer spending has also held up better than expected.

Inflation has also slowed with removal of the federal carbon tax, media were told.