Deficits are climbing across Canada, but one province stands out for its staggering red ink. Prince Edward Island is projecting a deficit of $450 million, or four per cent of its gross domestic product, the largest in its history and the biggest in the country as a share of the economy, according to Royal Bank of Canada assistant chief economist Cynthia Leach.
“Budget 2026 sees significant red ink across the forecast period with no path to balance,” Leach said. The higher deficits significantly increase the province’s debt burden, which by 2028-29 is expected to hit 39.9 per cent of GDP, just short of the 40 per cent ceiling in its fiscal anchor.
Provincial Deficits Widen Across Canada
Nine out of 10 provinces have tabled their budgets, and economists say their fiscal position has “eroded,” with some showing “marked deterioration.” All provinces except Quebec posted higher deficits. According to some forecasts, the combined provincial shortfall is expected to grow to as much as 1.4 per cent of GDP.
Net debt to GDP is projected to jump by nearly a percentage point to 31.5 per cent by 2027-28, nearing the highs of 2012-2015 when the economy was shaky. Debt servicing costs are also rising, with interest climbing from 6.4 per cent this fiscal year to 6.7 per cent by 2028-29.
“While still below the elevated levels of the 1990s and early 2000s, this rising ‘interest bite’ will further constrain fiscal flexibility and leave provinces modestly more exposed to rate shocks,” said Toronto Dominion economists Rishi Sondhi and Marc Ercolao.
Atlantic Provinces Hit Hardest
Shortfalls are especially acute in British Columbia, New Brunswick, and Prince Edward Island, where deficits are expected to average over 2.5 per cent of GDP over the next three years — “lofty by historical standards,” according to TD economists. The numbers for New Brunswick and Nova Scotia also show “marked fiscal deterioration,” Leach said. Newfoundland and Labrador tables its budget Wednesday.
Both Atlantic provinces posted some of the biggest deficit jumps in the country as a share of the economy, and their debt burdens, already higher than average, will see “very significant increases.”
Healthcare Spending Drives Deficits
Across all provinces, rising healthcare spending is a major reason for the erosion in fiscal balances. These costs contributed more than 100 per cent of the combined deficit increase for the four biggest provinces, led by Alberta and Ontario.
There is some good news: high oil prices from the Iran war are expected to boost budgets of crude-producing provinces such as Alberta, Saskatchewan, and Newfoundland and Labrador. However, overall, the fiscal outlook remains heavy on debt and light on growth.
