Provincial Updates

November 21, 2024 | 15:39

Alberta FY24/25 Mid-Year Fiscal Update

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

The Province of Alberta is estimating a larger FY24/25 budget surplus, now pegged at $4.6 billion (1% of GDP) compared to $2.9 billion estimated in the Q1 update, and a small $355 million in the 2024 budget. That leaves this year's surplus tracking roughly in line with the $4.3 billion balance posted last fiscal year. The cash continues to flow in Alberta.

There was no major update to the medium-term projection, and no major new policy announcements in this update.

Revenues are tracking a hefty $4.4 billion higher than the budget plan. Strength was widespread, with bitumen royalties running $3.1 billion higher, while personal (+$948 million) and corporate (+$300 million) income tax receipts were also revised up.

This update is based on the assumption of $74 for WTI (unchanged from the budget); $14 for the light-heavy differential (down from $16); and $73.3 US cents for the loonie (down from 75.9 US cents). While WTI has held largely as expected, a tighter differential and weaker currency remains a favourable combination for the province. More broadly, the detachment of the loonie from oil prices (i.e., a weak currency relative to oil) has been a significant revenue tailwind. At the same time, Alberta's royalty structure gets more favourable for the province as more oilsands projects reach ‘payout’ status, a process that is ongoing.

Economic assumptions have been changed modestly, with real GDP growth pegged at 3.0% this year (versus 2.9% in the budget) and 2.7% in 2024. Nominal growth is on track to jump 5.2% before ebbing to 4.9% next year. These are solid growth numbers considering the softness we've seen at the national level. And, while our current outlook for Alberta's real GDP growth in 2024 and 2025 (1.6% and 1.9%) is weaker than the province assumes, we remain firm in our view that Alberta will outperform the national average and run near the top of the provincial growth ranking in both years.

Meantime, spending is very little changed from the budget plan for FY24/25. Debt service costs have ebbed, while higher operating expenses have been fully absorbed by contingencies embedded in the budget.

The net debt-to-GDP ratio is now just 8.0% for FY24/25, the lowest in Canada by a wide margin and more than a full percentage point lower than last fiscal year.

All told, Alberta maintains the strongest fiscal position in Canada, and the gap is only getting wider. It does always come back to oil—current assumptions are a few dollars above market prices—but for now it's all clear on the fiscal front.