Alberta Budget 2025: $5.2B deficit puts economy back in the red

Education and a personal tax cut were among the highlights of what Alberta's finance minister called a tough budget on Thursday.

While a threatened storm of tariffs on Canadian products by the U.S. looms over Alberta’s economy, the province says it expects its dominant energy sector to weather it.

Financial Minister Nate Horner, in his 2025 budget presented Thursday at the Alberta legislature, said the province’s oil and gas producers are in a good position to brave the unpredictable investment climate brought on by factors including U.S. President Donald Trump’s continued tariff threats because of continued demand, additional export capacity and their robust financial positions.

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Drilling activity in Alberta has risen six per cent since the start of the year despite looming tariffs, Horner said in the budget, while oil production last year reached a record high and the value of energy exports rose 14 per cent year-over-year in December.

Also affecting the province’s revenue forecast is officials' expectations for the benchmark West Texas Intermediate (WTI) price for a barrel of oil: $68 in 2025-26, down $6 from last year, and rising to $71.50 in two years.

Each dollar by which the WTI fluctuates is worth $750 million to revenues, the province says.

The bullish Alberta attitude around provincial energy revenue comes as the United Conservative Party government is forecasting running deficits for the next three fiscal years: $5.2 billion in 2025-26, $2.4 billion in 2026-27 and $2 billion in 2027-28.

A year ago, Horner forecast a surplus of $367 million for 2024-25, updating it to $4.6 billion in November while warning Alberta could be in a deficit position.

When there is a significant drop in revenue – by more than $1 billion – the government is allowed to run a deficit. The estimated revenue for 2025-26 is $74.1 billion, while the forecast revenue for 2024-25 is $80.7 billion, a difference of $6.6 billion. Alberta’s legislated fiscal framework requires the province to return to a balanced budget within three years of reporting a year-end deficit.

Budget modelled using 15-per-cent tariffs

Thursday’s budget sets out three scenarios: high tariffs, some and none.

The base-case scenario is what this year’s budget is based on, with tariffs of 15 per cent on all goods except 10 per cent on energy, pegging the deficit at $5.2 billion.

The worst-case scenario would see tariffs at 25 per cent and 10 percent on oil and gas, putting Alberta’s deficit at $8.7 billion. That scenario could see up to 15,000 jobs lost this year, with up to 41,000 jobs in the province gone by 2027.

In modelling the budget using a 15-per-cent tariff rate and 10 per cent on energy, Horner said provincial economists are “making our best and most-reasonable guess.”

“(The duration of tariffs) could change,” Horner said. “It could be 25% for a few months and come back to zero.

“This has to be an average of the entire fiscal year, so we think this is a prudent place to budget from.”

Moshe Lander, an Alberta-based economist with Montreal’s Concordia University, called the province’s fiscal plan is “irresponsbible.”

“You can’t go around making unrealistic assumptions,” Lander told CTV News Edmonton on Wednesday afternoon. “You have to deal with what the reality is.”

Lander said he expects the government drew up the budget under “the illusion that they were going to somehow be able to escape Trump’s tariffs.”

“It’s not that they drew up the budget this morning, it’s that they drew it up weeks, if not months, ago,” he said.

“The thing with budgeting is that by the time that you get around to presenting it, the reality is usually something very different, so here’s a case then where it’s almost antiquated by the time that they present it, but you can’t really go back and run those things again.”

Naheed Nenshi, leader of the Opposition Alberta NDP, said the budget provides “no plan … to deal with the very real threat of tariffs, not just on energy, but on agricultural products and everything else that we produce here in Alberta.”

“I’ve never seen a government budget predicting that big a change in unemployment, but they somehow say magically this will get better in future years,” Nenshi told media in the legislature rotunda.

“There’s nothing in this budget to make it any better. They’re not investing in bringing new industries to Alberta. They’re not focused on anything beyond their tired old make-Alberta-great-again economic policies that haven’t worked for years.”

Horner said the finance ministry will “lean on quarterly reports” given the uncertainty of possible U.S. tariff rates.

“We’d better see what comes first. The government has the flexibility to respond, and we will,” Horner said.

“It’s one thing to have to forecast on what you don’t know, but to take the next step and say what you would do, I think we’d better just wait.”

Personal tax cut comes through

This year’s budget also follows through on previous UCP promises for a personal tax cut, with a new rate of eight per cent – down from 10 per cent – on the first $60,000 of income, effective the start of this year.

The province says the cut will save taxpayers up to $750 each this year and that they will start to see the cuts affect their paycheques starting July 1.

Besides the tax cut being a UCP campaign promise two years ago, Horner said “now may be the absolute most important time to bring it forward.”

“It’s one thing to look at what Alberta can withstand through all of this uncertainty and forecast from a Government of Alberta revenue perspective, but it’s the same uncertainty and has the same potential consequence for Albertan households,” Horner told media.

“We think it’s important right now to provide them with some affordability tools to try to withstand this.”

Kris Sims, the Alberta director of the Canadian Taxpayers' Federation, said in a media release his organization applauds the cut “it means huge savings for most working families,” equating it to the equivalent of a month’s rent or a month’s spending on groceries for a two-person working family.

Unemployment forecast

The province expects the unemployment rate to “remain high” with a forecast peak of 7.4 per cent in 2025 before dipping slightly to 7.2 per cent the year after, Horner said.

Horner said economic uncertainty brought on by the Trump tariff threats, the province is taking a “cautious” approach with the 2025-26 budget.

“We’ve built in an expectation that the province will be facing tariffs that will significantly impact our province,” Horner told media on Thursday, adding measures the government is taking “will dampen Alberta’s trajectory for growth” and that the province’s GDP is forecast to slow down to under two per cent after expanding by three per cent last year.

He warned that while Alberta’s energy sector “is in a good position to weather the storm,” the province expects others such as manufacturing and agriculture “to be hit hard by tariffs.”

Education

Education is seeing a 4.5-per-cent operational budget increase this fiscal year to $9.88 billion, an increase of $426 million.

Of it, the province says it’s spending $185 million in 2025-26 – of $1.1 billion over the next three years – to address enrollment growth through hiring more than 4,000 additional staff, including teachers and educational assistants.

Rory Gill, the president of CUPE Alberta – whose union represents thousands of educational assistants in the province currently on strike over wages – said while the funding is welcome, it doesn’t “address the low wages in the sector that are making it difficult to hire support staff,” adding there’s 10-per-cent vacancy rate among support staff in Edmonton public schools alone.

The province is also adjusting the funding formula for primary and secondary school education, moving to a two-year adjusted average from a three-year weighted moving average to increase funding for growing school districts.

To help cover some of those costs, Horner said the province will increase education property taxes, with estimated average increases this year of $239 for a homeowner in Calgary and $92 for one in Edmonton. The tax will cover 31.6 per cent of education funding this fiscal year and will rise next year to cover 33 per cent of it.

Other highlights

• With the creation of four new health agencies out of the former all-encompassing Alberta Health Services ongoing from last year’s budget, the province’s health operating budget is pegged at $22.1 billion for 2025-26, up $1.1 billion from 2024-25;
• The province is increasing municipal grants in lieu of property taxes by $17.2 million this fiscal year, raising funding up to 75 per cent of eligible property taxes on provincially owned buildings and to 100 per cent next year. Property tax payments have been a point of contention between Edmonton and other Alberta municipalities since the grant was reduced by 50 per cent between 2019 and 2020.
• Construction of housing is expected to continue at a robust pace given the high demand in recent years as Alberta’s population has grown, Horner said;
• On the tariff-fight front, the provincial budget includes funding for a border patrol team via its sheriffs, for energy-supply advocacy locally, nationally and internationally, and for support of Alberta agriculture producers and processors.

With files from CTV News Edmonton’s Chelan Skulski