Canada projects a $78.3 billion deficit this year, nearly double what the Trudeau government had planned
Canada’s governments are leaning harder on deficits just as tariffs, commodity volatility and rising interest costs reshape the risk landscape for clients.
Federal: bigger, longer deficits and rising interest bills
According to Reuters, Ottawa ran a $16.09bn deficit in the first six months of 2025/26, up from $13.01bn a year earlier, as program spending grew faster than revenues.
Program expenses rose 4.2 percent across almost all major categories, while public debt charges actually fell 2.2 percent on the back of lower interest rates, Reuters reported.
Revenues were up 2.5 percent year to date, driven mainly by higher personal income tax and other tax and duty revenues, including a 142 percent jump in custom import duties due to Canada’s counter‑tariffs on the United States, according to Reuters.
The more important story for advisors is the medium‑term path.
The Carney government’s first budget projects a $78.3bn deficit this year—almost double the $42.2bn deficit the Trudeau government had planned and larger than the roughly $35bn–$62bn deficits Trudeau actually ran over the past three years, as per the Fraser Institute.
The commentary from Fraser Institute said that, outside the pandemic years, this makes Carney’s deficit larger than any Trudeau posted, even though Trudeau was described as “the highest-spending prime minister in Canadian history (on a per-person basis).”
The Fraser Institute compared today’s deficit to the $56.4bn shortfall in 2009/10 under the Harper government, when Ottawa used stimulus to respond to the global recession.
A former Trudeau insider observed that Carney’s deficit is roughly similar in inflation‑adjusted terms to Harper’s recession‑era red ink, even though Canada is “not in the midst of a similar recession today.”
The commentary added that the current deficit is “largely the result of discretionary spending decisions rather than a response to US President Trump’s tariffs.”
Crucially for longer‑term planning, the commentary noted that the Carney government only plans to reduce the deficit by 19 percent over two years and 28 percent over four, leaving it at about 1.5 percent of GDP in 2029/30.
It also warned that even if Ottawa balances the “operating budget” in 2028/29, the government still projects a $57.9bn overall deficit once capital investment is included, meaning continued borrowing.
Debt‑interest costs are projected to reach $76.1bn by 2029/30—more than planned federal health‑care transfers to the provinces that year.
Provinces: resource exposure, tariffs and targeted relief
For clients in energy‑exposed provinces, the fiscal picture is also shifting.
In Alberta, Finance Minister Nate Horner now expects a $6.4bn deficit this year, $1.2bn worse than the estimate in the February 2025‑26 budget, according to CBC News.
The province cited softening oil prices and a 30 percent drop in natural resource revenue from last year.
Horner said oil prices have fallen about US$28 per barrel since 2022 and that Alberta’s finances have become more reliant on fossil fuels over the past decade, with every US$1 move in oil prices affecting revenue by hundreds of millions of dollars.
CBC News reported that total spending is projected at $79bn, up slightly from the February budget and $5.3bn above last year, with $881m already drawn from contingency funding to pay for new labour agreements with teachers, health‑care workers and other public‑sector employees.
Alberta has used $1.7bn of the $4bn set aside for emergencies.
In Saskatchewan, Finance Minister Jim Reiter now forecasts a $427m deficit for year‑end, compared with a planned $12m surplus in the spring and a $349m deficit estimate in August, as per CBC News.
He linked the shift to higher health‑care costs and an extra $295m for wildfire‑fighting efforts that forced 10,000 people from their homes, along with an additional $250m for health‑care pressures.
CBC News reported that total exports are down $1.4bn due to weaker oil and gas prices.
US tariffs cut forestry revenues by $121m and reduced metals revenues by $94m, while China’s tariffs on canola and other agricultural products cost that sector $136m.
Saskatchewan now expects net debt of $39.8bn by year‑end, up $962m or 2.5 percent, according to CBC News.
Opposition NDP finance critic Trent Wotherspoon called the original surplus projection “a work of fiction” and warned the books could worsen if the province cannot collect the $431m in industrial carbon levies still assumed in the budget.
Quebec is taking a somewhat different tack.
Finance Minister Eric Girard now projects a $12.4bn deficit for 2025‑26 after a $2.5bn deposit into the Generations Fund, $1.2bn lower than the March budget forecast, and aims to balance the books by 2029‑30, according to Bloomberg.
Quebec’s financing program has fallen to $24.3bn, $5.4bn less than planned, mainly due to reduced net financial requirements, greater use of pre‑financing and a higher balance of transactions under the credit policy.
