Alberta 2025 Budget Projects $5.2 Billion Deficit, Delivers $1.2 Billion Tax Cut

Alberta Finance Minister Nate Horner delivers the 2024 budget in Edmonton, on Feb. 29, 2024. The Canadian Press/Jason Franson

Alberta’s 2025 budget tabled on Feb. 27 projects a $5.2 billion deficit, while doubling the province’s contingency fund amid tariff threats and accounting for $1.2 billion in personal income tax cuts. Alberta Finance Minister Nate Horner called the province’s 2025-2026 budget one of “tough but measured choices.” He said the budget addresses the needs of Alberta’s growing population while preparing for the potential economic impact of U.S. tariffs on Canada as well as the risks of revenue volatility.

Earlier in the day, U.S. President Donald Trump said the threatened tariffs—25 percent on all Canadian and Mexican goods and 10 percent on Canada’s energy exports—will take effect on March 4, arguing that Canada and Mexico haven’t done enough to address drug smuggling.

Horner told a Feb. 27 news conference, “We made the difficult decision to run deficits so that we can direct and target our spending to the top priorities of Albertans.” He said the province is “investing record amounts in health care, education, and infrastructure to meet the needs of our larger population.”

The province has to do “the right things to ensure we remain steadfast in the face of oncoming headwinds,” he added.

The deficit projection, which officials estimate could rise to $8.7 billion if U.S. tariffs are fully enforced, results from falling prices in non-renewable resource revenues as well as increased costs for public services.

The province anticipates running deficits over the next three years, although they are projected to decline to $2.4 billion in 2026–27 and $2 billion in 2027–28.

The Alberta government last year had projected a surplus of $4.6 billion by the end of the 2024-25 fiscal year in its second-quarter fiscal update, delivered in November. That surplus, the province said, was “due mainly to higher revenue from personal income taxes and non-renewable resources.”

While the province expects potential tariffs to slow the economy, it nonetheless projects “moderate but continued growth” in oil production and investment, with officials citing the United States’ reliance on Alberta oil and expanded pipeline infrastructure.

“Alberta’s responsible crude oil exports are expected to continue to meet critical U.S energy needs, and the Trans Mountain Pipeline expansion will provide more export capacity for producers,” the province said in a Feb. 27 press release.

NDP Leader Naheed Nenshi criticized the budget, saying it lacks specific plans to protect the province from U.S. tariffs while increasing debt.

“There is no plan whatsoever in here 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,” Nenshi said at a Feb. 27 press conference.

“Under [the budget], you’re more likely to lose your job, you won’t have a family doctor, your kids’ class sizes will get even bigger, you won’t feel safe on the streets, your cost of living will remain out of control, and you and your children and their children will be stuck paying for a generationally large deficit.”

Bracing for Potential U.S. Tariffs

In response to the uncertainty surrounding potential tariffs, the province has doubled its contingency fund to $4 billion, up from $2 billion last year, focusing on budget flexibility rather than introducing specific measures like relief programs. This year, the province exceeded its budgeted contingency, largely due to wild fires.

The province is also boosting spending in social programs to $6.2 billion, “including a short-term bump to support more people affected by potential U.S. tariffs and rising grants for housing programs.”

The 2025 budget allocates $817 million to operating expenses for public safety, an increase of $44 million from the previous budget, mainly to secure the Alberta-U.S. border.

The province predicts its real gross domestic product growth will decelerate to 1.8 percent in 2025 and 1.7 percent in 2026, if tariffs are imposed. These forecasts assume Canada will face an average tariff of 15 percent on all goods and 10 percent on energy products, with the former based on the province’s estimates of what would be a “sustainable” tariff level for the U.S. economy.

Should full tariffs take effect, the province expects them to be “largely removed” by 2027, overlapping with the renegotiation of the United States–Mexico–Canada Agreement (USMCA) in July of next year.

The province expects that if Ottawa imposes retaliatory measures, such as reciprocal tariffs, it will allocate a portion of the resulting revenue to support provinces, Horner said at the press conference.

Reduced Revenue and Tax Cuts

The province projects a drop of $4.4 billion in revenue from last year’s forecast, driven by an anticipated decline in oil prices. It also foresees a revenue decrease of $600 million from personal income taxes, due to new tax cuts and the impacts of U.S. tariffs.

The new eight percent personal income tax bracket for incomes up to $60,000 is being introduced two years ahead of schedule, with the province saying it will help Albertans amid the affordability crisis, while fulfilling a campaign promise by the Alberta United Conservative Party.

The tax cut is expected to cost the province approximately $1.2 billion in revenue.

The provincial government, however, expects personal income tax revenue to grow “moderately” over the next two years as more people move to Alberta. The province is also foreseeing a decrease of nearly $600 million in corporate income tax revenue compared to the third-quarter forecast for 2024-25, but expects it to increase in the next two years.

Taxpayer-supported debt is projected to reach $83 billion at the end of 2025-2026, and increase to $98 billion by the end of the 2027-28 fiscal year.

The province will allocate $1 billion of surplus cash from the last fiscal year to offset new borrowing requirements in 2025-26, and another $1 billion of that surplus to the province’s Heritage Fund.

On Jan. 29, the province announced a long-term plan and a new Crown corporation to grow Alberta’s Heritage Fund to $250 billion over the next 25 years in an effort to protect Alberta’s economy from the “volatility” of the energy sector.

Health Care and Education

Budget 2025 allocates $28 billion in operating expenses to health care, an increase of $1.8 billion from the previous budget.

It includes $4.6 billion to increase access to acute care in hospitals, urgent care centres, and chartered surgical and other health facilities; $7 billion for physician compensation, development, and retention, $1.7 billion for Recovery Alberta Services and implementing involuntary addiction treatment, and $3.8 billion to Assisted Living Alberta, a new provincial continuing care health agency.

Education will receive $9.9 billion in operating expenses, an increase of nearly five percent from the 2024-25 third-quarter forecast. The province said the increase will help ease enrolment pressures, hire more teachers, and support “complex classrooms“ and students.

The province is also investing $2.6 billion over three years for educational infrastructure, expected to create more than 200,000 student spaces over the next seven years.