‘A Thing of the Past’: What Happened to Balanced Budgets in Canada?

People walk on Parliament Hill in Ottawa, in a file photo. The Canadian Press/Sean Kilpatrick

News Analysis

Balanced budgets, once considered the default goal of governments, increasingly appear to be the exception in Canada.

All eight provinces that have tabled 2026-27 budgets so far remain in deficit. Half of them—from Progressive Conservative-led Ontario to NDP-governed British Columbia, Liberal-dominated New Brunswick, and even resource-rich Alberta—forecast deficits will worsen from their previous budgets. The federal government, meanwhile, doesn’t expect a balanced budget for years.

“For the time being, balanced budgets are a thing of the past,” Lakehead University economics professor Livio Di Matteo said in an interview.

This shift seems to follow a change in fiscal priorities: governments appear increasingly willing to tolerate persistent deficits as they respond to economic volatility and rising voter expectations for public services, even as economists warn that failure to save during boom years has left budgets exposed. And some observers warn that the problem is even worse than the headlines indicate.

“If you add up a province’s deficits over time and compare them to the increase in net debt over the same period, you’ll find that the net debt is increasing a lot more than the deficits would suggest,” Di Matteo, who is also a Fraser Institute senior fellow, said in a recent analysis paper. “Indeed, this pattern has been underway for quite some time.”

That difference reflects how governments account for borrowing, with capital spending on infrastructure often kept separate from operating deficits even as it adds to overall debt levels, Di Matteo.

Over time, this accounting gap has widened significantly, particularly in the larger provinces such as Ontario, Quebec, and British Columbia, where increases in net debt have far outpaced deficits. With governments committing tens of billions of dollars to long-term infrastructure plans, overall debt levels are expected to keep rising even if operating budgets improve, underscoring concerns that headline deficit figures may not fully capture the fiscal pressures.

Preparing Ahead

Recent economic turbulence has further complicated the outlook.

BMO Financial Group chief economist Doug Porter said it is “not surprising” that most provinces are running budget deficits in this economic context, but some provinces are “maybe reflecting on the fact that they should have been a bit tighter when times were good.”

After years of deficits, the debt burden is now being compounded by the “two pretty big shocks” of U.S. tariffs and higher energy prices due to the U.S.-Iran War, Porter said.

Even resource-rich Alberta has slid deeply into the rut of deficit and debt.

In fact, it has the largest projected deficit increase of all provinces that have reported their latest budgets so far. Alberta foresees a $9.4 billion shortfall, compared to $4.1 billion in the previous budget. While expenses increased by $2.7 billion year-over-year, revenues fell by $7.9 billion.

In Alberta’s case, higher oil prices driven by geopolitical tensions—particularly the war in Iran—could help narrow the province’s deficit, he said. The conflict has disrupted energy markets, including through the blockage of the Strait of Hormuz, a key transit route, pushing prices higher. Saskatchewan may also benefit, as a major global supplier of potash, with fertilizer prices rising amid supply disruptions linked to the same geopolitical pressures.

Still, Di Matteo said it will be harder for most governments to balance budgets in the years to come, since they have been providing more support and transfers to Canadians in response to cost-of-living issues.

“It will be difficult to claw things like reductions in gasoline taxes or grocery benefits back once the public is used to them,” he said.

Jack Mintz, president’s fellow at the University of Calgary’s School of Public Policy, said growing deficits are a global trend that show no sign of slowing any time soon. He noted that in Canada, “deficits seem to be acceptable again, even though it means that future generations are going to have to pay for today’s largesse.”

The impact of these pressures is already visible in provincial budgets.

Provincial Budgets

The Alberta government said the decline in revenue in its latest budget was almost entirely due to a decrease in revenues from oil, as the province projected oil prices would stay low at an average US$60.50 in 2026. However, that was before oil prices rose due to the U.S.-Iran War, putting oil prices at nearly double that projection.

At the same time, however, the province said an increase in immigration will force it to spend more on delivering services, and has asked the federal government for more control over immigration.

British Columbia tabled a budget with a deficit of $13.3 billion for this fiscal year, after posting a deficit of $9.6 billion last year. However, the provincial government said this deficit was $1.6 billion lower than initially forecasted due to higher revenue from corporate and personal income tax and lower spending for refundable tax credits.

Ontario’s 2026 budget projects a $13.8 billion deficit for this fiscal year, compared to the $12.3 billion deficit projection for the last one.

The province of New Brunswick also posted a higher deficit for 2026, albeit a small one. New Brunswick is projecting a deficit of around $1.4 billion, compared to $1.38 billion in 2025.

Neither Alberta, B.C., nor New Brunswick have outlined plans to balance their budgets. Ontario, though, projects its deficit will fall to $6.1 billion by 2027, before a $600 million surplus in the 2028 to 2029 fiscal year.

In February, Ontario’s Financial Accountability Officer said the province was not projected to balance its budget due to spending increasing and falling government revenues. It projected the province’s deficit would widen to $11.8 billion in 2026 before “improving gradually” and narrowing to $6.3 billion by the 2029 to 2030 fiscal year.

At the federal level, the government has not yet released its projected deficit for next fiscal year, as it will do so when the Spring Economic Statement is tabled. But the federal government projected a $78 billion deficit for the 2025-2026 fiscal year, higher than its initially projected deficit of $42.2 billion from the 2024 Fall Economic Statement. The government has stated there will be no balanced budgets for the following four years.

Lower Deficits

The remaining provinces that have tabled budgets this year—Quebec, Manitoba, Saskatchewan, and Nova Scotia—are projecting lower deficits for 2026.

Quebec is projecting a deficit of $8.6 billion this year, which is $1.3 billion lower than the year before due to few new spending commitments.

The Quebec government plans to balance the budget by 2029, slowing the growth of total spending to 6.7 percent over the next four years, while revenue is anticipated to grow by 13.2 percent.

Manitoba’s deficit is projected to narrow to around $500 million this year from $1.7 billion the previous year. This is due to an increase in revenues from a normalization in Manitoba Hydro net income, and higher federal transfers and income taxes. Manitoba plans to return to a balanced budget by 2027.

Saskatchewan’s deficit is projected to fall from $1.21 billion in 2025 to $820 million in 2026, as the province attempts to reduce costs through the natural attrition of its ministries and Crown corporations.

Saskatchewan plans to return to a budget surplus by 2030 through sustained economic growth and adjustments to programs and provincial workers.

Nova Scotia has seen a slight decrease in its deficit for 2026, falling from $1.25 billion in 2025 to $1.24 billion in 2026. Nova Scotia has no explicit plans for balancing its budget, but projects its deficit will fall to $800 million by 2029.

The provinces of Newfoundland and Labrador and Prince Edward Island have not yet tabled their budgets.

Projections for Lowering Deficits

While several provinces have indicated they plan to rein in their deficits over the years to come, recent economic shocks could make that harder to achieve, as governments often maintain spending even if revenue drops.

BMO’s Porter said Canada’s “trade tussle” with the United States, along with upcoming review of the United States-Mexico-Canada Agreement slated for July, will force governments to “spend a lot of money to support industries and workers that have been affected.”

He said that according to BMO analysis, the combined budget deficit of the 10 provinces will be between $45 billion and $50 billion in 2026, equal to nearly 1.5 percent of Canada’s GDP. However, he said increased oil revenues for Alberta with rising energy prices could “vaporize” that province’s deficit and result in a lower overall deficit for the provinces. Rising energy costs, however, will harm the bottom line of provinces that are not net-energy producers, he said.

Porter said Alberta and Saskatchewan, which are both large oil exporters, have the lowest debt levels of all the provinces because they run budget surpluses “when times are good” to offset years when oil prices are lower and revenues fall.

“Both those provinces are really in the best shape in the country, even before the upswing in oil prices,” he said.

As for B.C., Porter said it’s projected to have the largest deficit-to-GDP ratio out of all the provinces, at 2.9 percent. He also noted that Moody’s Ratings recently downgraded B.C.’s credit rating from Aa1 to Aa2, with the credit agency noting a “marked deterioration in the province’s credit fundamentals.”

“I have to believe that with the benefit of hindsight, it would have been better if B.C. had been a bit tighter in recent years,” Porter said.

Mintz said the federal and provincial governments face difficulties with lowering their deficits and debt because the public is “very resistant” to tax increases, which have already risen by “quite a bit” as a share of GDP. Mintz said in the 1960s, taxes were around 33 to 35 percent of GDP, while it is now around 43 percent.

“Which means there’s a sense of unrealism that somehow, the government should be spending more, but at the same time, people don’t want to pay for it. And of course, that means only one thing: that debts and deficits become more acceptable to the population,” he said.