Alberta Must Resist Spending Spree Amid Oil Price Surge

The ongoing conflict in Iran has led to surging oil prices, which could bring a significant windfall to Alberta's finances. However, experts warn that this short-term gain may perpetuate the province's reliance on resource revenue, making it difficult to manage future fluctuations.

Adjusted for inflation, Alberta's resource revenue has ranged from $3.6 billion in 2015/16 (accounting for just 6.5% of total revenues) to $27.4 billion in 2022/23 (33.2% of total revenues). The province's new finance minister must navigate this volatility and avoid the temptation to increase spending with the potential windfall.

As oil prices frequently exceed $100 per barrel, Alberta needs to average between US$74.00 to US$77.00 per barrel to balance its budget this fiscal year. The government's debt interest costs will reach a projected $670 per Albertan this year, making it essential to manage resource revenue responsibly.

One way to avoid the province's past mistakes is to save a set share of resource revenue in the Heritage Fund, which would turn volatile revenue into a more stable permanent financial asset. This approach would also remove pressure on governments to increase spending during good times.