B.C. Minister of Finance Brenda Bailey tables the provincial budget as Premier David Eby, right, looks on in the assembly at legislature in Victoria in February.CHAD HIPOLITO/The Canadian Press
Under pressure to support their economies against tariffs and geopolitical shocks, provincial governments face tightening fiscal room and mounting debt burdens that could restrict their room to manoeuvre.
With budget season largely wrapped up, the combined deficits of the provinces are projected to widen by $6.5-billion to $47-billion, or 1.4 per cent of gross domestic product, with Ontario, B.C. and Alberta accounting for much of the red ink, according to a TD Economics analysis of provincial budgets for fiscal 2026/27.
The added borrowing needed to make up for that shortfall is set to push provincial debt to 31.5 per cent of GDP by fiscal 2027/28.
That would be nearly on par with the highs reached in the wake of the Great Recession.
Several provinces have sketched out plans to return to balanced budgets, notably Ontario, Quebec, Saskatchewan and Manitoba.
But while the first two of those provinces account for most of a slowdown in across-the-board program spending, they also face twin pressures of aging populations and trade war threats to key industries that could require them to act to prop up their economies.
Both provinces are also net importers of oil, and the surge in energy prices since the start of the Iran war in late February is expected to drive a divide between the budgets of commodity-producing provinces and the rest of Canada, according to TD economists Rishi Sondhi and Marc Ercolao.
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For instance, the Alberta budget projected a $9-billion deficit in 2026/27. But if TD’s forecast for higher oil prices into 2028 holds (it expects oil in the range of mid-to-low-$70 per barrel by then) it could boost the province’s fiscal position by $30-billion between last fiscal year and 2028/29.
On the other hand, high oil prices threaten the outlook for energy importers, “where lingering deficits and elevated debt burdens make fiscal positions more vulnerable to negative economic shocks,” they wrote.
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