Smith government should cut corporate welfare from upcoming budget

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The Smith government will table its next budget on Feb. 27. Finance Minister Nate Horner recently warned that, according to forecasts, oil prices may drop in 2025. And that has big implications for the budget. Indeed, while resource revenue (which includes oil and gas royalties) is currently keeping the Smith government’s finances out of the red, each $1 drop in oil prices removes about $630 million from Alberta’s bottom line.

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This isn’t a new development. Volatile resource revenue has created instability in provincial finances for decades. In the last 10 years, resource revenue has been as low as $2.8 billion in 2015/16 and as high as $25.2 billion in 2022/23. Correspondingly, resource revenue has accounted for as little as 6.5 per cent of total provincial government revenues in 2015/16—while Alberta ran a large budget deficit—and as much as 33.2 per cent in 2022/23 when Alberta ran a large surplus.

Resource revenue volatility is not in and of itself a problem. The problem is that Alberta governments have followed a familiar pattern. During periods of relatively high resource revenue the provincial government increases spending but does not commensurately reduce spending when that resource revenue declines.

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As a result, spending routinely exceeds stable and ongoing levels of revenue. In other words, while Alberta often enjoys periods of surpluses during times of high resource revenue—as the province is currently experiencing—provincial finances immediately deteriorate when resource revenue declines. And when the government falls into deficit, it accumulates debt. Albertans already pay approximately $650 each in provincial government debt interest each year.

So, how can Alberta get off this resource revenue rollercoaster?

Well, a clear first step is to eliminate wasteful spending. And a good place to start would be to stop dolling out billions of dollars in business subsidies to select industries and businesses annually, otherwise known as corporate welfare, paid for by taxpayers. A significant body of research shows that these costly subsidies fail to generate widespread economic benefit. Why? Because if the businesses that receive subsidies were viable they wouldn’t need government subsidies. Moreover, the government must impose higher tax rates on everyone else to pay for these subsidies. Higher taxes discourage economic activity including business investment, which fuels economic growth and opportunity for Albertans. And the higher the rates, the more economic activity they discourage. So, subsidies depress economic activity in some parts of an economy to encourage it in others.

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Corporate welfare also typically fails to generate new jobs on net. Take the Film and Television Tax Credit program in Alberta, for example, which the Smith government expanded in 2024. While the Alberta government may create jobs in film and television with the program by shifting resources and money (more than $100 million in 2023/24) towards that industry, it pulls those jobs away from other sectors that are likely more productive because they don’t need the subsidy to survive.

The Smith government continues to warn of a looming budget deficit as though it’s part of Alberta’s inevitable boom-and-bust cycle. But there are ways to avoid it. When the government tables its budget later this month, it should eliminate corporate welfare to save money and avoid red ink.

Tegan Hill is a director of Alberta policy at the Fraser Institute

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