Posthaste: Deficits are climbing across Canada, but this province is awash in red ink

Sharpen your pencils Canadians, because tomorrow Ottawa provides one of the last remaining pieces of a fiscal outlook for the country that so far has been

heavy on debt and light on growth. Nine out of 10 provinces will have tabled their budgets when Finance Minister François-Philippe Champagne presents the federal update Tuesday — and according to economists, their fiscal position has “eroded,” with some provinces showing “marked deterioration.”

All of the provinces posted higher deficits, except Quebec, with the combined shortfall, according to some forecasts, expected to grow to as much as 1.4 per cent of

gross domestic product. Net debt to GDP is seen jumping by nearly a percentage point to 31.5 per cent by 2027/28 which would be near the highs of 2012-2015 when the economy was on shaky ground.

Debt servicing costs are also going up, with interest climbing from 6.4 per cent this fiscal year to 6.7 per cent by 2028/2027.

“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 Bank economists Rishi Sondhi and Marc Ercolao. Shortfalls are especially acute in British Columbia, New Brunswick and Prince Edward Island where they are expected to average over 2.5 per cent of GDP over the next three years — “lofty by historical standards,” said the TD economists.

PEI, in particular, stands out. Its budget this year projects a deficit of $450 million, or four per cent of GDP — not only the highest in its history, but the largest in Canada as a percentage of the economy, said Cynthia Leach, assistant chief economist at

Royal Bank of Canada.  “Budget 2026 sees significant red ink across the forecast period with no path to balance,” said Leach.

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.

PEI isn’t the only one. The numbers for other Atlantic provinces, New Brunswick and Nova Scotia, show “marked fiscal deterioration,” said Leach. Newfoundland and Labrador tables its budget Wednesday.

Both posted some of the biggest deficit jumps in the country as a share of the economy, and their debt burdens, which were already higher than average, will see “very significant increases.”

Across all provinces rising healthcare spending is a big reason for the erosion in fiscal balances, said Leach. 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 on the fiscal front. High oil prices from the Iran war are expected to boost the budgets of crude-producing provinces such as Alberta, Saskatchewan and Newfoundland and Labrador.

The impact on Alberta is especially significant, with each dollar a barrel increase raising government revenues by $680 million, said TD.

When Alberta tabled its budget in late February the deficit was expected to swell to over $9 billion in 2026-27, the largest since the onset of the pandemic in 2020-21, but that was before oil hit the triple digits.

Alberta’s budget assumed oil prices at US$61, but RBC now expects prices to average almost US$80 in 2026-27. That could put another $13 billion in Alberta’s coffers and swing the books to a surplus, said Leach.

All eyes will be on the federal deficit when Ottawa presents its numbers this week, and there may be good news on the front too.

The November budget projected a deficit of $78.3 billion, but the government’s fiscal monitor out Friday showed a shortfall of $25.5 billion from April 2025 and February 2026 — well under the forecast with only one month to go.

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Mind the gap in Toronto’s condo market , warns Sal Guatieri, senior economist for BMO Capital Markets.

At the end of 2025, the average new condo price of $1,344 per square foot was 78 per cent (or $587 psf) above the average resale price of $757, he said. It’s a huge gap that has swelled from 31 per cent (or $144 psf) just 10 years ago.

As the price gap grows so does the massive glut of unsold new condos, which is now 40 per cent higher than long-run averages.

Guatieri said the recent HST rebate that will shave about 13 per cent or $175 psf off the price of a new condo won’t “normalize” the gap, but should help builders clear some of the oversupply.

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Many retirees are therefore reconsidering their financial plans, not due to poor decisions but because the economic landscape has changed and retirement can be expensive. Credit counsellor Mary Castillo has some practical ways to supplement your retirement income without sacrificing the lifestyle you have built.

Find out more Interested in energy? The subscriber-only FP West: Energy Insider newsletter brings you exclusive reporting and in-depth analysis on  one of the country’s most important sectors.

McLister on mortgages

Sign up here. Want to learn more about mortgages? Mortgage strategist Robert McLister’s

Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his

Financial Post on YouTube

mortgage rate page for Canada’s lowest national mortgage rates, updated daily. Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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