Provincial Finances Facing Headwinds

Near-term challenges but brighter longer-term outlook

OTTAWA, ON, July 29, 2025 /CNW/ - The sluggish economy will weigh heavily on provincial government revenues across the country in 2025, as all provincial governments will run deficits this fiscal year, according to The Conference Board of Canada's Provincial Fiscal Outlook, a new annual report from the organization.

"Provinces will continue to feel the pinch from higher interest rates brought on by spending due to the pandemic and subsequent deficits," stated Richard Forbes, Principal Economist at The Conference Board of Canada. "Demographics are creating an additional challenge to regional economies with the combination of retirees and slower population growth. However, our fiscal outlook brightens over the next five years as governments are broadly planning to reduce spending and will benefit from stronger economic growth across the country."

• Demographics are the biggest concern for Newfoundland and Labrador's fiscal outlook. The Conference Board of Canada forecasts the province's population will shrink by 10,000 residents over the next five years. Despite the demographic challenges, there are some positive developments for the region as oil and gas production is set to ramp up upon the completion of the Terra Nova Platform. Revenues are projected to rise 2.1 per cent in 2025-26 and by an annual average of 2.7 per cent in the following four fiscal years.
• Prince Edward Island has posted the strongest population gains of any province over the past 10 years, which is 25.0 per cent higher than it was in 2015. Tourism will provide a boost to revenues, particularly as more Canadians travel domestically in light of political tensions with the United States. The sector will also get a boost when the Charlottetown airport expansion is completed later this decade. Revenues, meanwhile, are forecast to rise 5.7 per cent in 2025-26 and by an annual average of 3.5 per cent between 2026-27 and 2029-30.
• Nova Scotia is estimating an $82-million surplus for the previous fiscal year compared to a $467 deficit projected just a year ago, putting the province in a good position to weather the economic headwinds of 2025. However, deficits are still expected over the medium term. Overall, revenues are expected to fall 2.3 per cent in 2025-26 before rising 2.6 per cent annually between 2026-27 and 2029-30.
• New Brunswick has been one of the most fiscally responsible provinces, posting a string of surpluses for the better part of the past decade. A major downside risk to our revenue outlook is from the province's forestry industry, which is exposed to tariffs from the United States. Revenues are anticipated to rise 3.0 per cent in 2025-26 – driven by stronger federal transfers – and 2.8 per cent annually through 2029-30.
• As Quebec moves toward restoring fiscal balance, it will be compelled to rein in spending growth despite rising pressures on public services. This fiscal restraint comes at a time when demand for healthcare is increasing, and the education sector is calling for greater investment. Healthcare spending, in particular, is expected to bear the brunt of the slowdown. Provincial revenues are forecast to rise by just 1.1 per cent in 2025, down from last year's 6.6 per cent growth. Revenues are then anticipated to rise by an annual average of 3.4 per cent between 2026 and 2029.
• Ontario's fiscal outlook remains stable despite the province being highly exposed to U.S. trade tensions. Spending in Budget 2025 included an acceleration of infrastructure plans, bringing total infrastructure costs close to $100 billion over the next three years. This year, provincial revenues are forecast to decline by 0.1 per cent, marking a sharp reversal from last year's 6.0 per cent increase. The pullback reflects weaker economic growth and a deceleration in population gains. Overall, revenues are expected to rise by an annual average of 3.2 per cent between fiscal years 2026–27 and 2029–30.
• Manitoba's fiscal outlook is steady despite rising debt costs. The province's 2025 budget hits many of the same marks as its 2024 budget, with a large focus placed on healthcare and education. This year's budget sets a new historic level of healthcare and education spending, but spending growth is slated to moderate considerably between 2026 and 2029. The Conference Board of Canada forecasts revenues to rise by a healthy 6.3 per cent this year, which is strong growth compared to the other provinces. Revenue growth will moderate between 2026-27 and 2029-30 but remain in relatively good shape, with average annual gains of 2.9 per cent.
• Despite lingering economic uncertainty, Saskatchewan's revenues are expected to grow at a solid pace in the near term. Robust population growth in recent years and a low unemployment rate will continue to support strong growth in personal income tax revenues. On the energy front, oil royalties are projected to remain flat this fiscal year due to lower prices, but a rebound in oil markets, coupled with rising potash output from the Jansen project, will help drive stronger resource revenues in the years ahead. Overall, The Conference Board of Canada anticipates the province's budgetary revenues will increase by 5.7 per cent in fiscal year 2025–26 and average 3.3 per cent yearly until 2029–30.
• Alberta remains in a stronger financial position than most provinces. It continues to boast the lowest net debt-to-GDP ratio in Canada, giving it more room to absorb economic shocks. This strong foundation provides a cushion if oil prices remain low for a prolonged period or if external challenges undermine investment in the province's energy sector. Overall, revenues are expected to fall by 2.5 per cent in the current fiscal year, driven by lower royalties, before picking up to 3.6 per cent annual growth between 2026-27 and 2029-30.
• British Columbia's finances have taken a steep turn over the past few years. In comparison with recent history, The Conference Board of Canada anticipates a slowdown in investment in the province, which weighs on our revenue outlook. However, there is promise with movement from the federal government on a plan to fast-track projects, particularly in Western Canada, which could kickstart business investment in the province. All told, revenues will rise a health 4.1 per cent in 2025-26, supported by increased royalties, and average 3.5 per cent annual growth in the following four fiscal years.

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SOURCE Conference Board of Canada

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