2025 Alberta Budget Analysis

Tax Cuts and Deficits: Breaking Down Alberta's 2025 Budget

Premier Danielle Smith has spent her career fighting for small government, lower taxes, and balanced budgets. She won’t be happy that Budget 2025 shows a $5.2 billion dollar deficit caused in part by spending increases of almost 7% for two years in a row. That’s fodder for critics within her own party. What will resonate with everyone is her income tax cut that will save the average Alberta family $1500. We suspect that the happiness over a tax cut will mute deficit concerns.

In fairness, many factors conspired to sink the Premier’s hope of a balanced budget. Lower than expected oil prices meant lower oil and gas royalty revenues. Uncertainty over tariffs is also slowing business investment and pinching government revenues. Contract negotiations with several public sector unions will mean higher wages and a more expensive public service. Alberta’s surging population sparked economic growth but also adds costs for education, health care and infrastructure. Budget 2025 allocates significant new resources for all three of these very expensive but high priority areas.

Six months ago, no one realized that the word “tariffs” would soon become part of our everyday coffeeshop discussion and that U.S. imposed tariffs could cause a major drop in our standard of living. Budget 2025 sets aside $4 billion dollars in a contingency fund to cover the impacts of tariffs should they ever come to pass.

In short, Budget 2025 reveals that Premier Smith and Finance Minister Nate Horner see that the economy is in a vulnerable place and Albertans are nervous; the perfect time to for a pragmatic budget and lower taxes.

The Fiscal Plan: Homeowners Asked to Row Harder Against the Headwinds

Alberta’s 2025 Fiscal Plan acknowledges that the province is heading into unpredictable – but not unnavigable – waters. The province will bring in $74.13 billion in revenue, and spend $79.3 billion, including an enhanced contingency fund. Broadly speaking, the Smith government has decided to continue spending at a similar rate to previous years (though below the estimated 7.3% increase needed to offset inflation and population growth from last year). While the UCP government is providing some tax relief to residents – particularly those with lower incomes – it’s asking property owners to pay more into the education system this year and next until 33% of the education system is funded through property taxation.

There’s a projected $6.6 billion reduction in provincial revenues over the course of the next year compared to the most recent third quarter projections for fiscal 2024-25. Lower revenues are being driven largely by lower oil prices ($4.4 billion less than last year) and the cost of Premier Smith’s new 8% personal income tax bracket, a $1.2 billion expense. There will also be lower revenues in almost every other income line – apart from federal transfers (due to population increases), education property taxes, and a small increase from fees and licenses.

On the spending side of the ledger, there are very few spending reductions. New spending is largely being driven by cost pressures in the health system (mostly labour and materials costs), and the need to keep up with increased demands in the education, social supports, and mental health sectors posed by significant population growth.

The most significant change to the province’s revenue generation is the decision to unfreeze the education property tax. The amount of taxes paid by property owners to support school jurisdictions will increase by 6.4% over the fiscal year, and are projected to increase annually for the next two years. The estimated increase for homeowners will be $239 in Calgary and $92 in Edmonton this year.

A Goldilocks Approach to Looming Tariffs

The bureaucrats in the Ministry of Finance are likely not fans of U.S. President Donald Trump after his threat of tariffs meant they had to prepare not one – but three different models for the budget.

Budget 2025 presents a best-case, worst-case, and base-case scenario where the worst case – tariffs at 25% and 10% on oil and gas – would result in a loss of $3.5 billion in revenue in the 2025-26 fiscal year and cost 90,000 jobs over the next three years. The base-case, which is what this year’s budget is based on, predicts 15% tariffs on all goods, except 10% on energy.

The Goldilocks style search for the best budget model is based on President Trump’s everchanging tariff threats. While the President is unpredictable, Budget 2025 provides certainty on the province’s efforts to meet one of his many demands: shoring up the border. More than $28 million is earmarked for the creation of a new 51-officer Interdiction Patrol Team, designed to strengthen Alberta’s ability to stop drug smuggling, gun trafficking, and apprehend people attempting to cross the border illegally.
We’ll find out whether the base-case scenario turns out to be “just right” should tariffs take effect in the coming months.

Crude Awakening: Alberta's Budget Running on Empty

Alberta’s dependence on oil revenues has always been a double-edged sword, and Budget2025 highlights just how vulnerable the province’s finances remain. Resource revenues are expected to drop by $4.48 billion - a roughly 21% decline from last year, and driving a projected $5.2 billion deficit. Bitumen royalties alone will shrink to $12.8 billion from $16.86 billion, further straining the province’s bottom line. The situation is compounded by the potential impact of U.S. tariffs on Alberta’s energy exports, which could double the deficit to $8.7 billion while slowing economic growth to 1.7% in 2025, down from more than 3% in previous years. To cushion the blow, the province has doubled its contingency fund to $4 billion, but the reality remains stark: Alberta is once again at the mercy of global oil prices and shifting trade policies.

The government has few levers to pull beyond advocating for market access and pushing back against federal policies that the UCP government argues will stifle investment. The province is projecting oil prices at $68 per barrel in 2025, down from $74 last year, with a widening price differential for Western Canadian Select crude that could further erode revenues. Meanwhile, investment uncertainty is growing, as the looming trade dispute with the U.S.  dampens capital spending and puts pressure on Alberta’s already volatile job market. While the province remains committed to positioning itself as a stable energy supplier, the fiscal reality suggests that Alberta is once again at risk of slipping into a pattern of boom-and-bust budgeting.

The Capital Plan: Education and Housing are Big Winners while Health sees Modest Investments 

Alberta will increase its capital spend by $1.1 billion over the three-year cycle tabled today – an increase of 4.4% from the previous three-year plan. While there are significant investments being made in other sectors, Alberta’s K-12 education system is the clear winner in this Capital Plan. The province is radically increasing school capital funding by 23.9%, and investing more than half a billion dollars over the next three years to build and renovate schools across the province to accommodate an influx of young families coming to the province.

Housing supports also see a significant increase , which likely comes as good news to Albertans struggling with the rising cost of living. In last year’s three-year plan, Albertaallocated just under $850 million in capital support for various housing programs. That funding will grow to $1.115 billion over the next three years – nearly a 30% jump in capital support. The bulk of the money will flow through the oversubscribed Affordable Housing Partnership Program where the province contributes up to one-third of cost for eligible projects built by public, non-profit, and private sector developers.

With significant new money being spent on the operation and reorganization of Alberta’s health system – and the continuing challenges being experienced by Albertans in accessing health care in the province - it’s a surprise to see only modest new capital investments. Health capital spending will see a significant decrease when compared to last year’s three-year plan, with the sector seeing nearly one billion fewer capital dollars than had been projected tin Budget 2024. Despite the overall reduction in health capital spending, Albertawill invest significant new dollars in mental health facilities, continuing care enhancements, the Alberta Surgical Initiative, and building spaces for mental health programming.

Health Care Refocus: Alberta's Reformed System Being Built on Shaky Political Ground 

Alberta’s health care spending is set to reach new highs for 2025, increasing spending by 5.4% ($1.4 billion) to a total of $28 billion. In line with the provinces Health Care System Refocusing Initiative, Budget 2025 focuses on improving access to care, prioritizing patients, building capacity in hospitals and rural facilities, expanding surgical capacity, and compensating and retaining skilled health professionals. The Government of Alberta is touting several big-ticket investments to accomplish these goals, including $644 million for primary care, $4.6 billion for acute care, $1.7 billion for addictions and mental health services, $3.8 billion for Assisted Living Alberta, and $7 billion dollars in physician compensation.

While effective health care delivery has long been a challenge that successive governments have grappled with, the governing UCP faces its own political headwinds that threaten to undermine their restructuring of the provinces health care system. The bombshell lawsuit brought against the government by former AHS CEO Athana Mentzelopoulos, who alleges she was wrongfully dismissed after conducting an internal investigation into agreements for chartered surgical facilities, threatens to undermine public trust in the government’s management of health care. The Opposition NDP have wasted no time in making this their front and centre political issue for the spring session. Health care reform doesn’t turn on a dime, and while the government continues to make progress in their envisioned reshaping of the health care system, they are at risk of seeing a reduction in their most important resource for such an initiative: public trust.

With the System under Strain, Education gets Big Boost and 4,000 New Teachers

Alberta Education is a budget winner with a 4.5% increase from the last fiscal year that aims to tackle enrollment growth, support students with special needs, hire additional teachers and classroom support staff, and add other resources to complex classrooms.

The budget promises to hire 4000 new teachers (over three years) and provides further clarity on the School Construction Accelerator Program (SCAP), which is expected to ramp up construction projects and expand modular classrooms. SCAP’s announcement in late 2024 was met with some pushback, as many critics felt it pitted school districts and charter schools against each other in battles for limited funding. Given the UCP government’s commitment and advocacy for choice in education, it will be interesting to see further details of how the new education funding is divided between different types of schools in practice.

Although this is Alberta’s highest-ever education budget, it’s important to remember the increase in funding may not be enough to keep up with inflation and ever-rising costs. Resolving ongoing labour issues tied to education and administrative staff compensation will be critical for the province’s bottom line and education system.

Cuts come for Arts and Culture

Budget 2025 brings cuts for Alberta’s arts and culture sector. The 2025 Capital Plan allocates $280 million over three years for arts, sports, and recreation infrastructure. However, operational funding for the Ministry of Arts, Culture, and Status of Women sees a $25 million drop from Budget 2024’s forecast to $226 million.
The Alberta Foundation for the Arts (AFA) sees a funding boost to $34.6 million, with plans to hit $43 million by 2027-28. It remains unclear how the AFA will allocate the $4.5 million increase to artists and organizations.

Heritage preservation remains a priority with $51 million going to Alberta’s museums and historical sites, including the Royal Alberta Museum and Royal Tyrrell Museum. However, the Glenbow Museum loses $2 million, now further relying on the AFA. Similarly, the community initiatives program sees a cut of $2 million. Other notable expenses for the Ministry include an $11 million increase in operating costs, with $12 million directed to the National Action Plan to End Gender-Based Violence. The rise is offset by a $36 million reduction in capital grants, which will hurt the organizations who rely on the funding.

Mixed Reaction to a Budget that Runs Red

The NDP threw some serious shade, claiming the budget drops the ball on health care, education, and job creation. They’re not thrilled about the increase in private surgeries while public health care gets slashed, and they think the education funding boost of 4.5% is just a band-aid on a much bigger wound. Shadow Finance Minister Court Ellingson warned cuts to essential services would inevitably lead to higher taxes and fees for everyday Albertans, summarizing the budget as a cocktail of "cuts, chaos, and corruption." 

Calgary Mayor Jyoti Gondek chose to remain cautiously optimistic about the budget, and thanked the provincial government for not slashing mental health support and low-income transit funding. She’s reviewing the education tax increase (for which the City of Calgary will send out the bill to collect on the GoA’s behalf) and the lack of investment to acknowledge Calgary is the country’s fastest growing city.

Meanwhile, Edmonton Mayor Amarjeet Sohi celebrated earmarked funding of $106 million for a new event park, the demolition of the Northlands Coliseum, and land prep for the Village at Ice District, with further details to come in short order. The City’s pre-budget lobbying also saw some wins including increased allocations to the Grants in Place of Taxes program, and continuation of funding for the low-income transit pass program.

Alberta Municipalities  (ABMunis) also expressed gratitude for increased allocations to GIPOT and low-income transit funding, but raised concerns over stagnant funding for Family and Community Social Services. ABMunis’ argument is that with Alberta's burgeoning population, flat funding effectively translates to diminished resources per capita.

Jason Schilling from the Alberta Teachers’ Association? Not impressed. He called out the budget for being short by $1.15 billion for education, while Gil McGowan from the AlbertaFederation of Labour warned that workers are ready to take their fight to the streets if the government doesn’t pay up on wages and services. The Alberta Union of Provincial Employees called out the province for using the deficit as a leverage tool in negotiations.

On the flip side, the Canadian Taxpayers Federation gave a thumbs-up to the income tax cuts, but have their eye on the growing deficit and rising debt.

Choices Were Made: Stability First, Ideology Second in a Time of Uncertainty says UCP

All budgets are about choices for governments. They are where you keep your promises, and also (sometimes) where you break them. In Budget 2025, Alberta’s UCP government kept a promise to cut income taxes but also broke its commitment to balanced budgets. This was a choice made by government as it faces tremendous uncertainty. The U.S. President is not just threatening economic harm but challenging Canada’s sovereignty. And we are on the eve of probably the most meaningful federal election since 1988. Against this backdrop, the UCP government chose to spend to promote stability and fiscal conservativism can wait another day.
 
The New West team is standing by to help clients find their way as an unclear and critical 2025 unfolds.