Over the past two years, oil prices have soared and the Alberta government has benefitted from an enormous revenue windfall. As a result, the province’s annual operating deficit evaporated and Alberta will enjoy a substantial surplus this year. But when the Smith government table its first budget Feb. 28, spending restraint is key.

Here's why.

Though the province’s short-term finances have improved quickly and dramatically, the Alberta government recently came to fiscal calamity. The pace of debt accumulation throughout the late-2010s was staggering and, within a decade, would have made Alberta one of the most highly indebted provinces (adjusted for population) in Canada—if an unexpected avalanche of resource revenue hadn’t fallen into the government’s lap.

Remember, as recently as fiscal year 2015/16, Alberta was the only province where the government’s financial assets exceeded its debts. In subsequent years, with some of its biggest deficits in provincial history, Alberta’s runup in debt was extraordinary. Between fiscal year 2015/16 and 2021/22, net debt climbed to more than $15,000 per person. This means Alberta was adding an average of approximately $2,500 in new debt for every resident of the province each year, greatly exceeding the pace of debt accumulation in any other province.

In the process, Alberta lost its status as having the lowest per-person debt in the country, overtaken by British Columbia and Saskatchewan, and was on track to pass historically high-debt provinces within a few years.

For example, in 2021/22 all three Maritime provinces, which historically have had problems with government finances, had similar per-person government debt, roughly in the range of $16,000 to $17,000. But none of these three provinces were adding debt as quickly as Alberta. This means that within a year or two, if not for the recent oil windfall, Alberta could have quickly found itself with more debt per person than every Maritime province.

A similar story holds for Quebec and Ontario. In 2021/22, Quebec ‘s net debt per person was more than $22,000. On its pre-COVID debt trajectory, Alberta was on track to surpass Quebec in less than half a decade. In Ontario, if the same pace of debt accumulation from 2015 to 2021 had held, Alberta would have caught Ontario in less than a decade.

Again, the resource windfall forestalled these disasters and Alberta is back into surplus. But the reprieve may only be temporary. The province’s expenditures remain far higher than ongoing revenue sources such as personal and corporate income taxes. So if resource revenues come back down to the levels of the late-2010s, Alberta’s rapid debt accumulation will resume.

Given this reality, it would be irresponsible for the Smith government to repeat the mistakes of past governments that quickly turned on the spending taps when revenues started to pour in—and paid the price when these revenues dried up. Instead, the government should capitalize on the chance to put provincial finances back on sustainable footing (by paying off provincial debt or re-introducing rainy-day account, for instance). And the first step is to restrain spending.

As little as two years ago, Alberta was on the fast track to become one of the most highly indebted provinces in Canada. If Premier Smith can resist the temptation to spend the money that’s rolling in and end the province’s rollercoaster reliance on natural resource revenue, her government could become one of the most consequential in the province’s fiscal history.