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.

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New Brunswick projects record $1.3 billion budget deficit

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 Global News’ Anna Mandin and The Canadian Press

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The outlook for Canada’s provinces is difficult to chart but some surprising resilience to U.S. trade pressures and historical revisions to economic data have most provinces on better footing heading into the 2026 budget season, argues a new analysis from Desjardins.

Randall Bartlett, deputy chief economist at Desjardins and one of the authors of the report published Tuesday, said a number of developments since even the provinces’ fall fiscal updates have shown what a fraught time it is for economists and policymakers alike.

“It is a much more difficult time to be doing forecasting for any economy, really,” he said.

British Columbia kicks off provincial budget season on Tuesday with Alberta on deck next week and other provinces expected to follow with their own fiscal updates in the coming months. The federal government shifted to a fall budget schedule last year, which it justified in part as a way to give provinces more clarity on Ottawa’s spending plans in advance.

Bartlett said at this time last year, the outlook for the provincial economies was “much worse than it is today” as U.S. President Donald Trump threatened waves of tariffs and Canada stared down an uncertain future.

Sharp tariffs have materialized on some sectors, weighing heavily on Ontario steel and automaking and Quebec’s aluminum industry, for example. But thanks to an exemption for goods compliant with the Canada-U.S.-Mexico agreement on trade, Trump’s blanket tariffs on Canada have not had as much of an impact on the economy as first feared, Bartlett said.

Also giving provincial economies a lift are recent historical revisions to gross domestic product published by Statistics Canada in November. Those updates, based on new information received by StatCan from the pandemic recovery era, raised previous estimates of GDP in 2022 and 2023 across the board.

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Bartlett said the revisions helped to assuage some concerns about stagnating per capita GDP and productivity growth and put the provinces on better footing than first expected entering the trade war.

“Overall, the provinces, I think, economically have fared better than we had previously expected in our last provincial outlook,” he said.

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How a better-than-expected 2025 will set up the 2026 budgets will vary province to province as new risks have materialized since the fall.

Trade tensions with the United States are expected to reach a tipping point this year with the scheduled review of CUSMA now underway.

Central Canada remains most exposed to Trump’s tariffs, Bartlett said, highlighted by the U.S. president’s recent attempts to target Quebec’s aerospace industry. But he said British Columbia, Saskatchewan and most Atlantic provinces are better positioned with diversified trade portfolios.

Many of these provinces could see dividends from the federal government’s renewed diplomacy with China, which is expected to reduce tariffs on canola — a big boost for Saskatchewan in particular. Increased trade could also see increased exports head overseas from B.C. ports.

Reduced Chinese tariffs on seafood and peas should also improve the respective outlooks for the Maritime provinces and Manitoba, Bartlett said.

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Regime change in Venezuela could threaten the fiscal picture of oil-producing provinces such as Alberta, Saskatchewan and Newfoundland and Labrador, Desjardins argued. Canadian producers could get less for their product if more heavy oil from Venezuela eventually makes its way up the U.S. Gulf Coast, the report said, which risks delaying investment in domestic production and lowering GDP in future years.

“That leads to reduced profitability for energy companies, which can lead to reduced production, reduced employment and also reduced revenues for the provincial government,” Bartlett said.

Despite the risks to Alberta, Bartlett noted the Wild Rose province comes into 2026 with perhaps the cleanest fiscal positions among the other provinces as it implements cost-cutting measures.

“I think there is an opportunity to find further savings for Alberta and ultimately position themselves well for when we get hopefully a more certain and less volatile regime for global energy prices,” he said.

Bartlett said each of the provinces took a different approach this time a year ago when accounting for the possible impact of Trump tariffs on their fiscal paths.

Despite the ongoing trade headwinds, Bartlett said Ontario and Quebec in particular baked a strong degree of “prudence” into their budgets last year and should see relatively rosier fiscal outlooks by comparison when they offer their updates in the coming weeks.

“We’re expecting some (provinces) to have underperformed or overperformed their Budget 2025 numbers when budget season’s over. But ultimately we’ll probably come around pretty close to where the budget numbers were in 2025, with the exception of maybe Alberta and some of the other energy producing provinces,” he said.

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British Columbia’s finance minister says this year’s upcoming budget is focused on protecting core services, but added it is a budget that is neither full of big cuts nor a large rise in taxes.

Brenda Bailey told reporters during a pre-budget presentation Sunday that the budget was one crafted for “very serious times.”

“There are many who have expressed to me that now is the time to make big cuts and bring the deficit down quickly and there are others who strongly hold the view we should be raising taxes and doubling down on providing even more services than we’re doing right now, and this budget is neither of those things,” Bailey said.

Bailey’s comments come days after Shannon Salter, deputy minister to Premier David Eby, said in an email that B.C. has an “unsustainable provincial budget deficit.”

A recent background briefing authorized by the premier’s office and delivered to reporters noted that the deficit is too high, but the government is committed to protecting core services while creating financial room for any unforeseen economic eventualities.

Current forecasts peg the provincial deficit at $11.2 billion.

Asked if this year’s deficit would be higher or lower than last year’s, Bailey said she would talk about it in the budget but said the plan is for it to decrease year over year and something that will “take time.”

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The minister told reporters that the government has been investing in building for the province – ranging from new hospitals and schools to post-secondary education and housing – something they plan to protect with the budget.

5:23
B.C. warns of public sector job cuts in upcoming budget

She said those investments would continue, with education and health care named as the primary core services the government aims to protect. She added that commitments have also been made to public safety, noting recent investments to tackle extortion threats in places like Surrey, B.C.

Bailey said she recognizes the need to bring the deficit down.

Though she would not give a number, she credited attrition in the public service for a reduction of 1,000 full-time equivalent positions (FTEs) and said “that work goes further” in the budget.

“We need to go further than we’ve been able to go so far and you’ll see that reflected in the budget,” Bailey said.

Eby has previously said the government would continue to reduce the size of the public sector.

The opposition Conservatives have said the provincial debt has “exploded” under Eby. When he took office in 2022/23, the debt was $89.4 billion, the Conservatives said in a release, but it is now projected to top $155 billion this fiscal year.

Conservative finance critic Peter Milobar said recently that questions need to be raised as to where all the money has gone.

“When the government is previewing cuts and new difficulties for families in the upcoming budget, it’s a question that must be asked,” Milobar said in a release. “Under this Eby government, announcements haven’t translated into actions or outcomes.”

Sunday’s preview of the budget was the first real glimpse into what was coming. The speech from the throne, delivered this past week, focused on helping the community of Tumbler Ridge recover after a school shooting left nine people dead, including the killer. Six of the victims were under 13 years old, five of whom died at Tumbler Ridge Secondary School.

Bailey was asked Sunday about supports for the community, including a new school after it was decided students would not return to the building following the shooting.

She said that the budget had been “in the can” prior to Tuesday’s tragedy, but said there is a contingency fund available for unexpected needs. She said either contingencies would be used to help the community, or adjustments would be made in the education budget, noting commitments have been made by the government.

The budget, which Bailey described as “disciplined, focused and serious,” is set to be delivered Tuesday.

—with files from The Canadian Press

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