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The Smith government recently announced it would quadruple spending on school construction from $2.1 billion to $8.6 billion over the next three years to build 30 new schools and create 200,000 more student spaces. While this spending may be warranted given record-high population growth, the province simply can’t afford it without reining in spending in other areas.
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Here’s the problem. Today’s relatively high — but very volatile — resource revenue helps finance today’s spending. For perspective, over the last 10 years, resource revenue, which includes oil and gas royalties, has been as low at $2.8 billion in 2015-16 and as high as $25.2 billion in 2023-24. It will reach a projected $19.8 billion this fiscal year.
According to the government, a $1 change in oil prices results in an estimated $630-million revenue swing. So while the Smith government currently plans to run a $2.9-billion surplus in 2024-25, a small change in oil prices would quickly plunge Alberta back into deficit.
Deficits, which occur when the government spends more than it collects in revenue in a given year, fuel debt accumulation. Alberta’s net debt (total debt minus financial assets including the Heritage Fund) is already $39.7 billion in 2024-25. Albertans must pay interest on this debt, which affects their taxes. Debt interest payments will cost a projected $3.2 billion this fiscal year.
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The government understands the current fiscal risk, fuelled by high spending and unpredictable resource revenue. Indeed, Finance Minister Nate Horner has repeatedly recognized that “oil prices will continue to be volatile and fluctuate,” emphasizing “we can’t spend beyond our means today.” And Premier Smith has promised to “wean our province’s budget off the volatile roller-coaster of resource revenues.” But while the government is saying all the right things, Albertans need more action.
Put simply, Smith needs to find savings within government.
Fortunately, there’s plenty of options. For example, the province spends billions in subsidies (a.k.a. corporate welfare) to select industries and businesses every year. A significant body of research shows these subsidies fail to generate widespread economic benefits. Eliminating this corporate welfare, which would generate significant savings, is a good place to start.
The Smith government must start reducing and/or eliminating wasteful spending. Otherwise, Alberta simply can’t afford massive new spending initiatives including billions for new schools.
Tegan Hill is director of Alberta Policy with the Fraser Institute.
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