Deficit a ‘dirty word’ in Alberta, but tax cut could help: strategist

Albertans will see some relief on their taxes starting this summer as a promised tax cut takes effect. CTV News Edmonton's Chelan Skulski reports.

Despite the economic uncertainty of low oil prices and impending tariffs from the U.S., Alberta insists now is the right time for a tax cut that will cost it $1.2 billion.

Budget 2025 was tabled Thursday with a $5.2-billion deficit forecast amid the looming trade war with the U.S. and a $4-billion drop in expected revenue from non-renewable resources.

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Some Albertans wonder if now is the best time to cut taxes.

“Money is a really tight thing, I think it needs to be managed,” Alex Ioannides said. “You need to support your social systems, you can’t just cut income tax.”

“The income tax cut kind of surprises me, considering the debt that we’re carrying,” said Jack Callbeck. “We’re going into a deficit budget and giving money back to the taxpayers – is that a good business move?”

“We probably should have diversified our economy a long time ago,” he added. “And we didn’t do that and now I guess we get to pay the piper.”

Thursday’s budget is based on the assumption of 15-per-cent tariffs and $68-per-barrel of oil.

Should 25-per-cent tariffs become a reality on Tuesday, Alberta’s deficit could grow to $8.7 billion.

Strategist Tom Vernon, from Crestview Strategy, said the current situation could have justified a push back of the United Conservative Party’s election campaign-promised tax cut.

But, he added, the party has already taken “heat” for not delivering amid 2024’s surplus and will be facing some big feelings about going in the red.

“It’s never a good thing to have deficits in Alberta,” he said. “They are a dirty word here … I think part of the cover they are doing is, ‘Well, we’re giving you this tax break. It’s going to put more money in your pockets, and we will weather that storm as a provincial government.’”

On Friday, Premier Danielle Smith defended the decision at a press conference with Finance Minister Nate Horner and Minister of Affordability and Utilities Nathan Neudorf.

“As we face headwinds from tariff threats that could cause inflation, we felt that we needed to make sure that Albertans had more money in their pockets to support their families, even if that meant having a larger deficit,” Smith said.

The province is predicting running deficits for the next two years. When asked on Friday about the path back to a balanced budget, both Smith and Horner signalled the province is already looking at where to cut costs.

“The capital investment, we have to keep on doing … It’s the operational spending that we have to get a handle on,” Smith said, offering up the idea of cutting corporate supports.

“When people talk about the royalty roller coaster, in my mind, it’s not necessarily the price of oil and the revenue, it’s the spending that follows,” Horner said. “If we’re going to be a low tax environment, which I think we all want to be, there’s other things that we will need to look at down the road.

“I think you will need instances where you see cost recovery in different ways, mostly in places where people have a choice, they’re making a choice to use a service that not everyone is.”

CTV News Edmonton has reached out to Minister Horner’s officer to clarify which services he was referring to and is awaiting a response.

Vernon said Alberta will eventually have to make a decision about how to rely less on oil in favour of more stable revenue.

The province has touted the Heritage Trust Fund as a possible solution, but Vernon said there is another powerful, albeit unpopular, option.

“Economists say a sales tax is probably the most effective way of gathering tax revenue,” he added. “There’s just such a political connotation to it here in Alberta that that’s a very tough conversation to have.”

Alberta’s new eight-per-cent tax bracket on the first $60,000 on income, down from 10 per cent, was effective Jan. 1.

Albertans will start to see savings on their paycheques in July, for an estimated $750 per year.

With files from CTV News Edmonton’s Chelan Skulski