According to its latest budget, the Smith government will run a whopping $9.4-billion deficit in 2026/27, the second consecutive fiscal year in the red. While oil prices have since soared, and the final budget picture could look very different, reoccurring deficits have sparked discussions about a potential provincial sales tax to generate more revenue. But Alberta’s deficits are due to a spending problem — not a revenue problem. For decades, Alberta governments have increased spending during periods of relatively high resource revenue (e.g. oil and gas royalties) but have not commensurately reduced spending when resource revenue declines, which inevitably leads to deficits when oil prices drop.

Of course, deficits fuel debt accumulation, and this fiscal year (2026/27) the Alberta government’s net debt (total debt minus financial assets) will reach a projected $51.4 billion and debt interest costs will reach $3.4 billion or $669 per Albertan. Every dollar that goes towards debt interest is a dollar unavailable for services such as health care and education.

HILL, LI: Alberta government has a spending problem — not a revenue problem Back to video

Which brings us back to a potential provincial sales tax (PST) — Alberta is the only province without a PST. Should the Smith government create one to help eliminate the deficit and shrink the debt?

No, because again, the Alberta government does not have a revenue problem — it has a spending problem. Indeed, according to our new study, non-resource revenue (e.g. tax revenue) is 139.2% higher in 2026/27 than it was in 1996/97, while program spending is 221.4% higher over the same period.

During that time, program spending has routinely exceeded levels required to account for inflation and population growth. In fact, if program spending had simply grown by inflation and population since 1996/97, it would be $46 billion in 2026/27 rather than the current projected $80.5 billion. In such a scenario, Alberta would also run a $25.2-billion surplus this fiscal year rather than the projected $9.4-billion deficit. Even excluding resource revenue entirely, which is projected to comprise 17.7% of all revenue this fiscal year, Alberta would be in a surplus at this spending level.

Moreover, total non-resource revenue is projected to be 12.5% of the provincial economy in 2026/27, which is above the average (11.6%) since 1996/97. This statistic further underscores the government has a spending problem, not a revenue problem — unless one accepts the need for larger government as a share of the economy.

Back in the 1990s, the Klein government significantly reduced spending in response to deficits and rapid debt accumulation, ultimately balancing the budget and eventually paying off Alberta’s debt. As Klein’s Treasurer Jim Dinning once said: “For years, governments in Canada have been living beyond their means. Governments have put off paying bills until tomorrow in the mistaken belief that revenue will catch up to spending. Overspending, not lack of revenue, is the problem.” Yet Alberta governments continue to repeat past mistakes.

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The first step in fixing Alberta’s fiscal problem is understanding its cause. Unless the government solves its spending problem, Albertans will continue to pay the price.

Tegan Hill and Nathaniel Li are economists with the Fraser Institute.

© Edmonton Sun