Alberta projects $4.6B surplus but deficit could be looming

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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 was higher than forecast in either of the last fiscal updates in August or February’s budget.

But he also cautioned there were “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 April 1, 2025.

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 TMX pipeline coming online.

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Expenses have only risen slightly from the budget, up $143 million to $73.3 billion.

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.

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 average 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.

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

Population growth a continued mixed bag

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The province noted more than 450,000 people have moved to Alberta in the last three years.

While that migration is bolstering personal income tax revenue, it is also coincidentally driving government spending.

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.

The province is projecting population growth to slow slightly, down to 2.5 per cent in 2025 from the projected 3.2 per cent published in August.

More to come.

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