The great fiscal–economic decoupling of Alberta

Alberta may be heading toward another multi-billion-dollar deficit, but this time the crisis feels different. The province’s books are deteriorating, yet the broader economy is not collapsing alongside them. That decoupling of suffering reflects in no small part a profound restructuring of Alberta’s energy sector over the past decade—one that has made producers more resilient even as the province remains deeply exposed to volatile royalties. Oil prices have fallen sharply, from roughly $90 a barrel for WTI when Premier Danielle Smith took office to closer to $60—enough to erase surpluses and create deficits, but not enough to crater employment as it once did. The political consequences could be significant. When economic pain is muted, the pressure on the government to slash spending or raise revenues eases, and the strategic calculus for both the ruling party and opposition shifts in response. Smith’s narrative shift We saw an early glimpse of that recalibration in Smith’s televised address last Thursday. “This is not the first crash in oil prices our province has faced, nor will it be the last,” she said. “What is unique about the current oil price crash versus others in the past is that our economy today is more diversified, resilient, and still growing despite the drop in oil price.” Instead of framing the moment as a crisis demanding sacrifice, as many premiers did in past downturns, she led with economic strength before pivoting to external causes of government red ink. The real strain, she suggested, was not simply the price of oil, but the pressure on services driven by rapid population growth and what she called “Justin Trudeau’s disastrous open border immigration policies.” “In just the last five years of Trudeau’s tenure, Alberta grew by almost 600,000 people to more than five million,” Smith said, pointing out that Ottawa has prioritized international students, temporary workers, and asylum seekers over economic migrants. In that framing, the deficit becomes less a story about provincial fiscal management and more about every premier’s favourite nemesis: Ottawa. And so Albertans are now set to vote in a fall referendum on proposed measures to limit immigration—shifting the debate toward federal policy and population growth. “Perhaps immigration could be the next big fight with the federal government,” conservative strategist Amber Ruddy predicted ahead of the address on a recent episode of Alberta Edge. She seems right on that front. In Alberta politics, picking a fight with the federal government has often proved less risky than picking one with voters. Jim Prentice learned that the hard way after his infamous “look in the mirror” remark helped end the PC dynasty. At the time, Prentice was trying to level with Albertans about the province’s structural deficit. “Basically, all of us have had the best of everything and have not had to pay for what it costs,” the late former premier said in 2015. “Collectively we got into this as Albertans, and collectively we’re going to get out of it, and everybody is going to have to shoulder some share of the responsibility.” Resource royalties are, in fact, a form of taxation derived from collectively owned assets. Because natural resources belong to Albertans, companies pay the province for the right to extract them. But unlike income or sales taxes, those payments never land in anyone’s bank account before being remitted to the government. The cost of public spending is therefore too abstract and remote to feel personal. That disconnection is arguably more acute today as a result of the great decoupling of fiscal and economic pain. Familiar infrastructure deficit To be clear, the infrastructure strain Smith mentioned is not imagined. Albertans see it in crowded emergency rooms, modular classrooms parked beside schools, and services pushed beyond their intended capacity. But none of it is new. The tension between rapid growth and public infrastructure has shadowed Alberta for decades. Ever since Ralph Klein “blew up”  the Calgary General Hospital in 1998, successive governments have spoken of the need to overcome the province’s “infrastructure deficit.” Immigration and temporary foreign workers have undoubtedly intensified recent pressures. But they are only part of the story. Interprovincial migration has surged as well, in part fuelled by the province’s own “Alberta Is Calling” campaign under Jason Kenney. Not long ago, Smith echoed that same growth-oriented sentiment, sending then Liberal immigration minister Marc Miller a letter, urging Ottawa to double the number of allocations for Alberta’s provincial nominee program for immigrants to address the labour shortage. Her Thursday address still acknowledged the importance of skilled newcomers to Alberta’s economy. But the shift in tone, and the emphasis on who’s draining public resources, was notable. Who’s the fiscal hawk? To counter the UCP’s current narrative, the province’s New Democrats are now accusing Smith of scapegoating and deflecting from her own government’s fiscal decisions. There is opportunity in that line of attack, as this government has increased spending significantly in recent years. Critics like Ken Boessenkool and Drew Barnes have pointed to the premier’s penchant for creating ever more Crown corporations. The Canadian Taxpayers Federation, for its part, is calling on the province to cut MLA pay, end corporate subsidies, and slash the number of directors in Alberta Health Services by half. Smith herself once wielded fiscal-hawk arguments effectively as leader of the Wildrose Party. But today, it’s unclear who occupies that role in the legislature. A disincentive may be that this kind of critique simply doesn’t land the same way now. Certainly, it would be more difficult to persuade voters that Smith is “ruining the economy” with wasteful spending when the economy is strong. Instead, the opposition has returned to highlighting funding shortfalls in schools, hospitals and social programs. This strategy risks reinforcing the party’s long-standing “SpendDP” stereotype, while also sidestepping a broader political shift, not only in Alberta but across Canada, where public sentiment around immigration has become more complicated. Whether one agrees with the premier’s framing or not, it resonates in a province grappling with rapid population growth. Ignoring that shift, or dismissing it outright, risks leaving the opposition speaking past voters rather than to them. Yet beneath the political positioning, the underlying math problem remains. Royalties rollercoaster continues Each $1 drop in oil still strips roughly $750 million from provincial coffers. The province now requires roughly $22 billion in non-renewable resource revenues to balance its books—far more than what was needed a decade ago. By contrast, the oilpatch has become leaner and more automated over that same period. Companies can withstand lower prices and still turn a profit. $40 per barrel is now widely cited as the new break-even point. “The royalties that the government earns are extremely price sensitive, less to production,” said Mark Parsons, chief economist at ATB Financial. In other words, while industry has adapted to volatility, the province’s fiscal framework has not. Governments could learn a thing or two from that discipline. Yet ahead of the upcoming Alberta budget, the political conversation has already drifted away from efficiency and austerity. In her address, Smith spoke of cutting bureaucracy. But in the same breath, she ruled out drastic reductions to social services and neglected to mention anything about her own Crown corps or spending choices. Instead, she’s responding to a different point of frustration. The great decoupling makes it all possible. When voters do not feel immediate, widespread economic distress, they are less inclined to demand deep structural reform. Deficits become more tolerable. Other fixes involving “other people” become politically acceptable, even more preferable. And once again, Alberta may be able to postpone the harder, longer-term questions about revenues and spending—at least until 2027, when the government’s own self-imposed triple deficit limit could force a more direct reckoning.