Lower-than-forecast oil prices could mean Alberta budget deficit, premier says

Alberta Premier Danielle Smith says a potential budget deficit next year is not off the table as oil prices sit below what was projected.

Smith told reporters Tuesday that although the government's 2024 budget initially projected a surplus of $367 million when it was tabled in February, a deficit was always possible if oil prices dropped.

The projected surplus was dependent on West Texas Intermediate oil prices averaging $74 US per barrel, but the price to start the week has been around $68 US per barrel. In a fiscal update in late August, the province pegged the average price of West Texas Intermediate oil to be $76.50 US.

Smith told reporters Tuesday the lower-than-forecast oil price, coupled with "different pressures coming our way," is straining the province's financial outlook.

"It's a serious problem," Smith said.

"We have a number of different pressures coming our way and we have to be honest with people about what we're facing."

Finance Minister Nate Horner said it's too early to say for sure if Alberta will see a deficit, but he said posting a surplus will be a challenge.

"It'll be a sincere challenge if there isn't an uplift in the overall forecast for oil, coupled with our population growth pressures that we're seeing on the spending side," Horner said.

"We're watching it every day and it'll be a challenge regardless."

Smith wouldn't say if a budget deficit means an income-tax cut, which she campaigned on in 2023 only to say the cut would need to be delayed due to tight budgets.

"We're looking at all of the factors," she said, adding that a phased-in tax cut would be considered as the province develops its 2025-26 budget.

Naheed Nenshi, leader of Alberta's Opposition NDP, told reporters he is "very worried" about what a deficit could lead to, such as service cuts.

"I warned when this government took power that their first budget, instead of taking us off the resource roller-coaster, actually made us more dependent on oil and gas royalties," Nenshi said.

"If, in fact, we are in deficit and they want to go forward with that tax cut, then we're going to see massive cuts to the services that Albertans need at a time where things like education and health care are already incredibly underfunded."

Horner said the UCP government wasn't considering any cuts, but said at the same time the development of next year's budget hasn't begun yet.

"That will happen in earnest this month," he said.

"It's too early to get into any of those conversations, but we'll have to look at everything together, as opposed to things in vacuums."

Horner was also asked about the government's own rules prohibiting budget deficits except under certain circumstances.

He said a drop in oil prices like what has been seen could be an exception to the rule.

"It's definitely possible," he said.