Trump tariffs and tax cut have Alberta's finance minister seeing red (ink)

CBC

28-02-2025

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In a rare admission, Finance Minister Nate Horner acknowledged there was some political daylight between him and Premier Danielle Smith when it came to putting Alberta deeper into deficit for the sake of fast-tracking a tax cut.
Horner tabled a budget with $5.2 billion of red ink this year, and $1.2 billion of that is the cost of the reduced income tax rate the premier promised in the last election campaign.
He'd previously said Alberta couldn't afford to bring in the new eight per cent tax bracket until 2027. And after expressing concern that oil prices and other uncertainties threatened to tip Alberta into its first deficit since the height of the COVID pandemic, his budget brought in the rate cut anyhow.
When Smith told CBC News in December that she'd be OK with going into deficit to bring in her tax cut, she also said Horner had "robust conversations" with her on this question, and he tended to be the cautious sort of finance minister.
Horner made that reluctance clear when asked about it Thursday.
"If it wasn't for the position that we're in with the tariffs coming in — the uncertainty — I might have had to get drug [dragged] to this point if I was going to do this," Horner told reporters. "Balanced budgets mean a lot to me."
Danielle and Donald
It would appear, based on that assertion, that Smith's own lobbying proved less persuasive than the high likelihood that U.S. President Donald Trump will impose punishing tariffs on Canada. A tax cut that could save individuals up to $750 a year, Horner now reasons, offers some affordability relief against the coming economic blow.
Historically, balanced budgets have meant a lot to Albertans, too, including former premier Ralph Klein's triumphant erasure of the provincial debt two decades ago, and Jason Kenney's return to surpluses after the oil-price slump and recession the NDP government oversaw.
But these days, Horner isn't sure he's governing over a province of anti-deficit hawks. The minister says he tells provincial counterparts: "I don't know how fiscally conservative Albertans are, but they're definitely tax averse."
Smith's first budgets as premier hiked spending more in two years than Rachel Notley's NDP did over four, and 2025's edition raises spending in many areas, largely to keep up with the rapid growth that will push Alberta's population past five million this year.
She and Horner appear to have judged that the populace doesn't want the sort of Klein-era cuts that chased away unbalanced budgets. Rather, Albertans may want a little extra something for themselves if the government is adding to taxpayer debt instead of curbing it.
"Conservatives, we don't like deficits. We're allergic to them," conservative strategist Sarah Biggs told the West of Centre podcast this week.
"But if the deficit is caused because of a tax cut to the middle class, I think they will be OK."
Will the big question marks around Trump tariffs add to the public's deficit tolerance?
Certain uncertainties
The province based its budget on the assumption that the president will slap 10 per cent tariffs on Canadian oil and gas soon, and that tariffs on other exports will average 15 per cent for the year — the calculation being that the tariffs will either be less than the 25 per cent Trump has declared, or that they won't stick around for the whole year.
If it's worse than projected — and as tough as Trump has threatened — Alberta's deficit will be nearly $9 billion this year, the province could flirt with recession, and unemployment could reach eight per cent next year, according to provincial forecasts.
Joblessness in Alberta hasn't been that high, outside the pandemic spike, since the rough patch in 2016 and 2017.
Alberta's budget-makers are perennially used to unpredictability, having to guess what global oil prices and the exchange rate will do for the year ahead. In fact, the "low" and "high" scenarios in past financial blueprints have been far greater than in Budget 2025.
But those are based on economists' best predictions on crude price and other indicators. This year, the province's optimistic and pessimistic scenarios narrowly focused on a single highly volatile factor: what one man in the White House will decide to do on Canadian trade.
Another slice of the Smith government's first deficit is due to a contingency fund set at $4 billion, not the $2 billion of past years — some of it to cope with climate-related disasters like wildfires, some to potentially settle employee wage negotiations, and some to brace for necessary relief programs in response to tariffs.
British Columbia's government considered the same dire economic threat from our neighbours and decided to backtrack on the affordability measure its NDP government pledged in an election. It cancelled a $1,000 grocery rebate — which would have been more of a temporary bit of relief than Alberta's permanent tax rate cut.
On the other side of the country, Nova Scotia last week tabled the first pre-tariff budget. Stop us if this sounds familiar to Albertans: that province's Conservatives introduced a deficit budget that sets aside a reserve for tariff relief, but also cuts income tax rates.
Even federal Liberals campaigning for the party leadership would see their own ideas in what Horner did. Both Mark Carney and Chrystia Freeland are promising middle-class tax breaks in budgets that wouldn't yet be balanced.
Horner is forecasting that Alberta budgets for 2026 and 2027 will feature deficits as well, but provincial fiscal policy would require a return to balance after that."We do need a path out of this," the minister said.
Trump will still be president in 2028, and it's difficult enough to peg where oil prices will be for the rest of this year, let alone later this decade.
But as for Horner, he's hoping that Albertans — and his premier, presumably — will have an appetite for some of the restraint and sacrifice he believes in to end this red-ink streak.