Alberta's big budget question: What to do with the torrent of cash flooding provincial coffers

Say it slowly: Twenty. Eight. Billion. Dollars.

It's a staggering sum of money, when you think about it.

If you were able to sock away $10,000 per day, each and every day, it would take you more than 7,600 years to amass that much cash.

Thanks to oil and gas, the Government of Alberta only needs one.

Provincial revenues from royalties (and other related fees) are expected to total $28.1 billion in the current fiscal year, which ends March 31. Even accounting for inflation, that is by far the province's largest annual haul from its bountiful, non-renewable resources.

"It's really difficult to overstate how big these numbers are," said Trevor Tombe, an economist with the University of Calgary.

It's also difficult to wrap your mind around. Such vast sums of money are so far beyond most people's day-to-day experience, they can almost lose meaning.

Albertans are accustomed to booms and busts, so this may seem like just another ride on the resource rollercoaster. But even by those standards, this latest upswing has been especially huge, and it's come at breakneck speed.

With a new provincial budget due out Tuesday, a key question will be: What to do with all this extra cash?

To help make sense of just how much money the province is now working with — and how quickly its fortunes have turned around — here are five key things to understand about the current royalty ride.

1.  It's the biggest upswing — ever

Two years ago, Alberta's finances were looking very, very different.

When the government released its 2021-22 budget, it expected just $2.9 billion in non-renewable resource revenue for the fiscal year.

What actually happened blew those expectations out of the water: the province raked in an eye-popping $16.2 billion over the ensuing 12 months.

"We've never seen that kind of a massive swing before," said Tombe.

"The change in our budget balance — from a pretty large deficit, to a modest surplus, to now a large surplus — is the largest swing in provincial budget balances in Canadian history."

The upward trajectory continued into the 2022-23 fiscal year, which is now nearing its end. Things are looking pretty darn good for 2023-24, as well.

We'll get revised estimates when the new budget is released on Tuesday, but from the way things are shaping up, the current fiscal year will eclipse all others when it comes to Alberta's revenue from oil and gas.

Even when you account for inflation.

2. We're talking real dollars here 

Some of you might be thinking: Of course these numbers are high; we're in a period of high inflation.

What about the real dollar values?

Well those, too, are record-breaking.

Adjusting for inflation, Alberta's non-renewable resource revenue has never been higher.

In terms of real revenue, the current fiscal year towers above all others — even 2005/06, the boom year in which the provincial government handed out "prosperity cheques" (also known as "Ralph Bucks," named after then-premier Ralph Klein) to every Albertan.

The recent surge in royalties is due to a confluence of three main factors: high oil prices, record amounts of oil production, and the maturation of several large oilsands projects, which means they are required to pay a higher royalty rate.

Today's gushing spigot of cash stands in especially stark contrast to the recent past.

3. The last downturn

Think back, way back, all the way to 2015.

Remember the infamous "look in mirror" comment?

Then-premier Jim Prentice uttered the phrase in an off-the-cuff remark on the CBC radio call-in show Alberta@Noon. The topic was the dire financial situation the province was facing at the time.

A global downturn in oil prices was hitting the province hard. Budget deficits and a wider recession loomed large.

Prentice tried to steel Albertans for the tough times ahead. He repeatedly warned that the oil-price crash would punch a "$7-billion hole" in the province's finances.

His response was a budget replete with spending cuts and tax increases, followed by a general election.

Voters rejected Prentice's vision and handed him a stunning defeat, marking the end of a 43-year Progressive Conservative dynasty and, ultimately, the end of the political party, itself.

Alberta had a brand new NDP government, which now faced those same fiscal challenges.

Over the next four years, oil prices stayed low — and so did government revenues.

The NDP government's single term in power was marked by one of the lowest periods of non-renewable resource revenue in the province's history.

The UCP government elected in 2019 under premier Jason Kenney didn't fare much better, at first. Oil prices stayed depressed and then the COVID-19 pandemic hit the economy even harder.

Which makes the recent turnaround all the more remarkable.

4.  About $6,200 per person

If the province took the $28.1 billion it expects to collect this year in non-renewable resource revenue and distributed it evenly to all Albertans, that would work out to about $6,200 per person.

Tombe believes breaking the numbers down like this helps convey the true scale of Alberta's recent windfall, as it's hard to appreciate the difference between a million and a billion, let alone 10 billion or 20 billion.

"They all just sound equally big, and so that I think makes it difficult for for us to have a conversation around it," Tombe said.

"Breaking it down on a per-person basis, for a family of four, it's equivalent to two grand a month. That's huge money."

When looked at through this lens, however, Alberta has seen even larger windfalls in the past.

While the province has never taken in more royalty money than it's taking in right now, the province has also never had as big of a population as it does right now.

Back in the late 1970s and early 1980s, amid the global supply shock that drove oil prices sky-high, the province actually took in more oil-and-gas money, per capita, compared to today.

Those revenues were super-charged by a 1973 decision from then-premier Peter Lougheed to switch to a price-sensitive royalty system. (Royalties were paid at a fixed rate prior to that.) By the late 1970s, oil and gas royalties made up the majority of the Alberta government's revenue.

5. It's not like the 1970s, but that boom still echoes 

As flush with cash as Alberta's coffers now are, it still doesn't compare to the situation the province was in nearly half a century ago.

In the late 1970s, oil-and-gas royalties made up between half and three-quarters of total government revenue — an astounding proportion by today's standards.

By this metric, things bottomed out in 2015/16, when non-renewable resources made up just 6.5 per cent of the provincial government's total revenue.

They've since shot back up to nearly 37 per cent.

But governments today are still benefiting from that 1970s boom.

The Alberta Heritage Savings Trust Fund was established in 1976 and loaded with excess cash from all those royalties.

Since then, the fund's investment earnings have been used to pay for capital projects and seed other provincial endowments. The fund has also transferred tens of billions of dollars to the province's general revenue.

"That's all thanks to the savings that occurred a half-century ago," said Tombe.

With the new boom Alberta is now enjoying, Tombe believes it's time for a similar, future-oriented mindset.

"Thinking about how we can address our long-term challenges with these short-term windfalls is is critical," he said.

We'll get a better sense of what the province has in mind for all that money, when Budget 2023 drops on Tuesday.