Alberta is flirting with a credit downgrade

Spending keeps overshooting projections. Without a serious review of Alberta government programs, its credit rating could come under pressure

Alberta’s spending is rising faster than the province can sustain, and without a permanent review of government programs, future credit downgrades are increasingly likely.

After the 2026 budget was released, Moody’s Ratings said spending growth and weaker oil revenues are leading to rising debt and large deficits, which could put Alberta’s credit rating at risk. This warning should be a real eye-opener for the Alberta government to restructure its fatally flawed program review process.

Even with a cabinet committee tasked with reviewing spending, there has been a disturbing pattern of the Smith government far exceeding spending projections over the past four years. Any government commitment in the 2026 budget to hold annual operating spending increases to less than the combined rate of inflation and population growth in both 2027-28 and 2028-29 should be taken with a grain of salt.

Let’s look at the evidence. In 2022-23, operating spending was initially projected to increase by 2.3 per cent, but actual operating spending increased by 8.1 per cent. In 2023-24, operating spending was initially projected to increase by three per cent, but it actually increased by five per cent. In 2024-25, operating spending was initially projected to increase by 3.9 per cent, but actual operating spending increased by 7.2 per cent. And, in 2025-26, operating spending was initially projected to increase by 3.6 per cent, but it is now projected to increase by 7.9 per cent.

The government’s 2026 budget shows that up to $6.9 billion in spending reductions or revenue increases, equal to 8.2 per cent of program expenses, will be needed to return to a balanced budget by 2028-29. In practical terms, this means the government will have to reduce spending, increase revenues, or pursue some combination of both. Yet despite nearly two years of cabinet committee program review, the Smith government has not identified these savings.

The 2026 budget also reveals that between 2022-23 and 2028-29, program expenses per person are projected to grow from $13,736 to $16,110, an increase of nearly $2,375 per person, or 17 per cent. Alberta is once again a high-spending province, with middle-of-the-road public service outcomes.

Past program review efforts in Alberta have rarely delivered lasting change. Reviews have tended to be fragmented, reactive and limited in scope, often launched in response to fiscal pressure and abandoned once the immediate crisis passed. Monitoring has also been inadequate.

Program review has generated thousands of blank pages in response to various Access-to-Information requests I have submitted over the past two years, and there is little evidence in the 2026 budget that the process has produced meaningful results.

Yet Alberta has shown before that serious program review can work.

In the mid-1990s, the Klein government was confronted with a structural deficit and the need to make spending cuts of nearly 20 per cent to the provincial budget. The government launched a comprehensive program and service review to determine what government should do, what it should stop doing, and where spending could be reduced.

Every program and service was examined against two basic questions: Is this a core responsibility of government? Should the provincial government be delivering this service? Programs that failed these tests were restructured or eliminated.

Strong political leadership from Premier Ralph Klein and Provincial Treasurer Jim Dinning ensured the process produced results. Between 1992-94 and 1995-96, program expenses fell by nearly 21 per cent, and the province moved from a deficit of $3.4 billion to a budget surplus of $1.1 billion.

If Alberta wants to restore fiscal discipline again, it needs a permanent, legislated system for reviewing government programs that forces governments to justify spending and eliminate programs that no longer deliver results.

Three steps are essential to make such a system work.

First, Alberta should make program reviews a permanent part of its fiscal framework laws so governments must examine spending regularly instead of waiting for a fiscal crisis.

Second, the province should establish a permanent program review office to examine government programs and identify what is working, what is not and where savings can be found.

Third, government ministries should be given clear savings targets and held accountable for achieving them, ensuring that program review produces real fiscal results rather than reports that sit on a shelf.

If the Smith government really wants to address its high spending, it needs to go beyond making incremental cuts “around the edges” and start asking some of the tough questions: What are the government’s strengths, and where should it step back and allow others to take the lead? Should the government even be involved in a particular area? What results is the program or service achieving? Are there more effective ways to accomplish these goals? And what other ways of delivering these services should the government consider?

With a strong program review process in place and if the Smith government were able to hold its operating spending at 2025-26 levels of $67 billion over the next three years, it could return to a balanced budget in 2028-29. But this requires tough decisions backed by a credible program review process.

Half-baked measures, such as the Smith government’s current program review, are not enough.

Lennie Kaplan is an economic consultant and a former senior manager with over two decades of experience in the Fiscal and Economic Policy Division of Alberta’s Ministry of Treasury Board and Finance. He also served as the executive director of the MacKinnon Panel on Alberta’s Finances, specializing in the development of policy options to reform federal-provincial fiscal arrangements and provincial financial structures.