Prince Edward Island’s latest operating budget, which projects another record deficit, is raising alarm among advocacy groups that say the province needs to take a closer look at how it spends money.

The budget, tabled Tuesday by Finance Minister Jill Burridge, projects a deficit of $410 million for the 2026-27 fiscal year. That’s more than double the $183.9 million deficit originally projected for 2025-26, which is now forecast to reach $449.6 million.

Devin Drover, Atlantic director and general counsel with the Canadian Taxpayers Federation, said the increase in government borrowing means P.E.I.’s net debt is expected to rise by nearly 20 per cent to $4.5 billion by the end of the current fiscal year.

“The budget is a major red flag for taxpayers,” he told CBC’s Island Morning.

Drover said the province needs a sweeping review of government programs, similar to the review undertaken by the federal Liberal government in the 1990s under then-prime minister Jean Chrétien and then-finance minister Paul Martin, which led to billions in savings.

Burridge, who chairs the province’s cabinet committee on fiscal responsibility and red tape reduction, said Tuesday a comprehensive review will be done.

Drover said while the province has pointed to population growth as a key driver of spending, P.E.I.’s population growth has been slowing even as government spending continues to rise at a faster rate.

He said each Islander will pay about $1,100 in debt interest charges this year alone, an increase of roughly 17 per cent in just one year.

Drover noted the province’s plan to keep borrowing over the next three years, with P.E.I.’s net debt projected to reach $5.1 billion by the end of the 2028-29 fiscal year.

Long-term risks of growing debt

Drover cautioned that while governments often talk about long-term paths back to a balanced budget, those plans frequently fail to materialize because of changes in government or shifts in the economy.

If debt and interest costs continue to rise, he said, the province will eventually be forced into difficult trade-offs: either reduced service quality as more revenue is diverted to interest payments, or higher taxes as the government tries to maintain services while carrying a heavier debt load.

“It certainly saddles future generations of Islanders if they don’t get this under control,” he said.

Drover pointed to New Brunswick and Nova Scotia, both of which have faced credit downgrades tied to deficit concerns and rising borrowing. He warned a similar downgrade for P.E.I. could be possible.

“If your credit gets downgraded, the cost of borrowing goes up. So it’ll be even more money that Islanders pay, that we siphoned away for being used towards essential services and instead being used to really just pay for the dead interest charges.”

‘The deficits today are the taxes of tomorrow’

Frédéric Gionet, the director of the Canadian Federation of Independent Business in Atlantic Canada, said there are some positive signs in the budget.

The province said exports grew by eight per cent in 2025 despite uncertainty around trade with the U.S., making P.E.I. the only province to post growth in that market.

Gionet said the budget’s focus on affordability measures could indirectly help small businesses by easing some labour pressures.

But he said there are no major new investments aimed specifically at helping Island businesses reduce the cost of doing business in the province.

The CFIB is also worried about the province’s growing deficits. Gionet said business confidence is already under pressure because of rising fuel prices and increasing costs, including higher minimum wages.

“The deficits today are the taxes of tomorrow,” he said. “It’s a yellow sign, you know, and possibly a red flag, but they’re not alone.”

Gionet hopes the fiscal responsibility committee chaired by Burridge will identify government waste and find efficiencies while keeping the focus on core services.

He said that may not bring immediate relief for businesses but could eventually create more favourable conditions, including the potential for lower taxes.

“It won’t solve anything short term, but it sets the course for the province to be competitive.”

Child-care sector welcomes funding

Meanwhile, some sectors welcomed specific investments in the budget.

Jennifer Nangreaves, executive director of the Early Childhood Development Association of P.E.I., said the organization is pleased the budget includes $81.6 million to continue the $10-a-day child-care program.

“In other jurisdictions, this is not the case. There’s been some provinces and territories that saw that was a way to save money, and so we were very pleased that the [$10-per-day child care] is protected for families,” she said.

Nangreaves also welcomed the budget’s $4.2 million investment to create 400 new early learning spaces.

But she said expanding access will not succeed without a parallel focus on the workforce.

The budget includes $990,000 to improve wages for early childhood educators, but Nangreaves said she would like to see something more than a one-time increase.

“We have been asking for that to be a predictable, sustained investment,” she said. “The system can’t continue to grow without a strong workforce. And so we were hoping to see more of a long term commitment.”