Why you should care about the Alberta budget, even if you don't live there

This column is an opinion by Trevor Tombe, an economist at the University of Calgary. For more information about CBC's Opinion section, please see the FAQ.

From a projected deficit of $18.2 billion in February 2021, to a surplus of more than $500 million in February 2022, Alberta's fiscal turnaround is nothing short of remarkable.

Revenues are set to rise $19.5 billion for 2022 compared to 2020 (a 45 per cent boost!), mostly due to high oil prices. The government, after all, gets a cut of each barrel sold. Revenues from oil and gas royalties alone are projected to be $13.5 billion — the highest in Alberta's history. Add in higher income tax revenues, investment income, and federal transfers, and the previous deficit quickly evaporates.

What's more, the budget likely understates how dramatically Alberta's fiscal situation improved. 

The government is banking on oil prices averaging $70 US per barrel this fiscal year. But current prices are well above $90 per barrel, and futures markets suggest that an estimate of $85 per barrel this fiscal year would have been entirely defensible. At that price, Alberta's surplus for 2022/23 could exceed $8 billion. 

This rapid turnaround in Alberta's fiscal fortunes — easily the largest in the province's history (however you want to measure it) — obviously matters for Albertans.

But Canadians everywhere should also care. Here's why.

First, the benefits of high oil prices extend beyond Alberta.

It is understandably hard to appreciate these gains when faced with pain from high gasoline and home heating prices. But they're real.

Higher revenues for — and therefore spending by — the oil and gas sector benefits countless suppliers spread throughout the country. Indeed, recent research suggests only New Brunswick may be economically harmed by high oil prices.

The federal government also stands to gain. 

The reason is simple: higher oil prices increase corporate profits in the sector and each additional dollar in profits translates into 15 cents of revenue to the federal government. Plus there are spillover benefits to worker income, supplier sales, and so on.

It's tough to be precise, but based on a 2015 report by the Parliamentary Budget Office I estimate that a $30 per barrel higher oil price translates into an approximately $5 billion decrease in the federal government's deficit.

That's a lot. It's more than the entire planned federal spending on the new childcare initiatives now rolling out across the country, for example.