Budget season for Canada has kicked off with three provinces already posting steep deficits, a trend economists say is the result of several factors impacting every part of the country.
On Tuesday, British Columbia unveiled their budget that comes with a record $13.3 billion deficit in the next fiscal year.
In recent fiscal updates, New Brunswick announced a record-breaking $1.33 billion shortfall and Nova Scotia last month said its deficit is estimated at $1.4 billion. Alberta is also forecasting a $6.4 billion shortfall for the 2025/26 fiscal year.
“The increase in deficits is something that is being experienced across the country to various extents,” said Jesse Hajer, associate professor of economics at the University of Manitoba.
Hajer said two of the most common factors are the high economic uncertainty given trade tensions with the U.S., and a change in immigration that is reducing the labour force and slowing economic growth.
But he added there are also specific issues different provinces are facing.
He used Alberta as an example, saying oil prices are pulling down the revenue of the provincial government. Meanwhile, in Manitoba, the province is seeing what Hajer calls a “structural deficit,” in which its revenue base is “not enough to keep up with funding our baseline expenditures.”
“When we hit a challenging time like we are faced with today where the expectations of government are high, the revenues aren’t necessarily there to support and meet those expectations,” he said.
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A recent report by TD Economics suggested the tone by provinces as they ready their budgets will be “cautious,” due to rising deficits, increasing debt burdens, and economic outlooks shaped by slower growth, trade uncertainties and spending pressures.
Moshe Lander, senior lecturer in economics at Concordia University, said governments are being faced with the issue that tax revenue is not rising nearly as fast as it could, and yet people are living longer meaning governments have to spend more per person.
“If tax revenues aren’t big, government spending is high, interest on the debt is high, then there is no path in which you’re going to hear a government say, hey, we balanced the budget, let alone ran a surplus,” Lander said.
Randall Bartlett, deputy chief economist at Desjardins, said in a report released prior to B.C.’s budget that economically, provinces have “fared better” than expected in their 2025 report.
This was due to economies getting a lift from historical revisions to gross domestic product published by Statistics Canada in November. That helped assuage some concerns about stagnating per capita GDP and productivity growth and put the provinces on better footing than first expected when entering the trade war with the U.S.
Each province and territory took a different approach, but Bartlett said Ontario and Quebec baked a strong degree of “prudence” into their budgets last year and should see a relatively rosier fiscal outlook by comparison in their own upcoming updates.
Lander said as deficits are announced and some provinces announce their plans, they should work to better educate people why the deficit is there as opposed to what is the dollar amount.
“Then they can understand that, hey, the deficit isn’t necessarily bad, it should happen during bad times. I want to hear surpluses during good times. Then people can be a little more informed when they hear these numbers so that they don’t have sticker shock,” Lander said.
Yet as more budgets and fiscal updates are set to be announced, there is the risk of who could be impacted most.
“There will be pressure now on provincial governments to find savings and to find those savings in areas of service delivery where advocates might not be as strong as in other areas,” said Tom Urbaniak, political science professor at Cape Breton University.
“Unfortunately, that means often that people who are in the lowest socioeconomic brackets who make the least money might be affected.”
—with files from The Canadian Press
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