Provincial Budgets

February 26, 2026 | 19:27

Alberta (FY26/27) — Light Sweet or Sour?

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 projecting a $9.4 billion deficit in FY26/27, or just under 2% of GDP, a sharp deterioration from a $4.1 billion shortfall now estimated for FY25/26. A few factors take some sting out of the headline. First, FY25/26 is tracking $2.3 billion better than expected as of the latest update. There is also a chunky $2 billion contingency built into the FY26/27 forecast, and the $60.50 assumption for WTI is leaning to the safe side given where pricing is on budget day.

Further ahead, Alberta sees modest deficits persisting through the forecast horizon, at $7.6 billion and $6.9 billion in FY27/28 and FY28/29, respectively, although with $2 billion contingencies still built into each of those fiscal years. There is no plan to balance the budget in this outlook.

There were a number minor new measures announced in this budget carrying relatively small dollar tags. The bigger impact is the result of strong increases in education and healthcare spending. Some notable items:

Education Property Tax: Hikes will add an average of $340/year for Calgary homeowners and $154/year for Edmonton homeowners.
Vehicle Rental Tax: A new 6% tax on passenger vehicle rentals, effective January 1, 2027.
Tourism Levy: Increasing from 4% to 6% for hotel rooms and short-term rentals starting in April.
Various fee hikes for traffic fines, land titles, vehicle registrations, and provincial historic site admissions.
Education sees a record 7.2% funding increase aimed at hiring 3,000 teachers and 1,500 assistants over three years.
Health Care see a strong 5.8% funding increase.
Total long-term borrowing of $15.7 billion.

Total revenue is projected to dip 0.9% to $74.6 billion in FY26/27, with bitumen royalties sliding by $3 billion to $9.7 billion. These estimates are based on WTI oil prices averaging US$60.50 and the loonie holding at 73 US cents. The bountiful combination of firm oil prices and a weak currency of recent years seems to have turned against the province somewhat.

Revenue sensitivity: A $1 increase in WTI prices would lift revenues by roughly $680 million; a $1 improvement in the WCS spread would add $670 million; while every 1 cent increase in the value of the Canadian dollar will trim about $440 million.

The Province's economic assumptions are reasonable and assume status quo on tariffs through the forecast horizon. Alberta sees 2026 real GDP growth at 1.8%, down from 2.2% in 2025. That leaves growth somewhat more conservative than BMO Economics' 2.3% call for 2026. Nominal growth is expected at a tame 1.9% this year before firmer oil prices drive a 6.0% jump in 2027. We continue to view Alberta as among the least exposed to trade tension, and sporting some of the strongest domestic demand conditions in Canada. That is reflected in our a province-leading growth forecast for both 2026 and 2027. The energy sector is solid in this oil price environment, even if most capital spending continues to go toward maintenance rather than new projects. Demographics remain supportive, with net inflows from the rest of Canada offsetting some of slowdown in international immigration. And, while housing has cooled in Calgary, the market continues to outperform other major centers, namely Vancouver and Toronto.

Total expenses are expected to rise 5.7% in FY26/27, with operating expenses rising at a 5.1% clip. Substantial funding increases for health care and education drive the headline increase. Over two fiscal years, operating spending will now have jumped almost 14% as pressure from strong population growth persists. Meantime, the capital spendingprogram gets even more robust, rising to $10.0 billion in FY26/27, versus $8.7 billion in the prior fiscal year. Some of the priority areas (such as health care capacity) continue to flow through this area of the budget, along with transportation infrastructure spending.

The Province borrows to fund the capital plan, operating deficits and GBEs. Total borrowing requirements are expected to run at $20.9 billion in FY26/27, with $15.7 billion in long-term borrowing (the remainder will be money market). Long-term borrowing then rises to $18.1 billion in FY26/27 before turning lower. The deeper deficit and sturdy borrowing will lift net debt in FY26/27 to $51.4 billion, although that weighs in at a still-low 10.5% of GDP. That ratio will rise through the forecast horizon to 12.9% by FY28/29, still (likely) the lowest in Canada by a wide margin at that point. For reference, Alberta's net debt-to-GDP ratio peaked at 20% in FY20/21, and the improvement since that point has been far and away the largest in Canada.

The Bottom Line: Alberta is facing clear spending pressure after years of outsized population growth. Oil prices, while down from last year's expectation, are holding firm, but we all know that revenues there can come and go easily. At the end of the day (or fiscal year), Alberta is still holding the strongest fiscal position in Canada, as other provinces are either starting in a weaker spot, or deteriorating even faster.