OTTAWA - Under the pressures of a U.S. trade war and a decelerating economy, all of Canada’s provinces are anticipated to operate fiscal deficits this year. However, a recent report from the Conference Board of Canada forecasts that these deficits are likely to decrease in the upcoming years.

The Tuesday report presents a challenging scenario for provinces, which are currently grappling with balancing their budgets. After recently emerging from a pandemic that resulted in exponentially larger deficits, Canada’s provinces now face the looming threat of a trade war.

In their budgets for this year, most provinces have established contingency funds aimed at supporting workers and critical industries impacted by ongoing tariff disputes. Additionally, many provinces are collaborating with the federal government to advance significant infrastructure projects in the forthcoming years, further exerting pressure on capital expenditures.

As provinces deplete their financial reserves, they are also preparing for a potential economic downturn. Richard Forbes, a principal economist at the Conference Board, remarked, “When we see a slowdown in economic activity, that leads to less job creation, less spending, less income, and less corporate profits. These are major drivers of provincial revenues.”

Another factor impeding provincial revenue is the slowdown in population growth, which has been exacerbated by Ottawa’s restrictions on immigration. Coupled with an aging population and baby boomers retiring from the workforce, provinces are likely to experience reduced income tax revenue. The increase in retirees simultaneously escalates demand for health-care spending.

Forbes warned that, with the federal government imposing new immigration caps, population growth could stagnate in the coming years. This stagnation would limit any potential labor market relief provided by newcomers, as older Canadians leave the workforce. The report highlights Newfoundland and Labrador as an example, predicting a population decline of 10,000 over the next five years. Quebec and much of the Maritime provinces are also expected to experience adverse effects from an aging population.

Conversely, Prince Edward Island is noted for having the highest population growth among provinces in recent years. The report indicates a 25-percent increase in its population over the last decade, contributing to a 2.6-year reduction in its median age.

The Conference Board’s forecast suggests that Canada’s economy contracted in the second quarter of the year due to tariffs and uncertainty hampering manufacturing activity. Nevertheless, the organization anticipates a modest economic growth recovery for the remainder of the year.

Looking further into the future, the report projects that provinces will begin tightening their budgets, likely leading to a reduction in deficits by the end of the decade. The federal government plans to achieve a balanced operational budget within three years, and Forbes anticipates similar fiscal trimming by provinces in areas like public administration.

Certain provinces, such as Saskatchewan and Alberta, are expected to return to annual budget surpluses ahead of 2030, thanks partly to their stronger fiscal positions bolstered by younger demographic profiles and some protection from tariff impacts. Alberta, Saskatchewan, and Newfoundland and Labrador are expected to pivot towards renewable energy sectors, though the fluctuating oil and gas sector remains a significant factor in shaping the fiscal outlook in these provinces.

Ontario is forecasted to achieve a balanced budget by the decade's end. Accelerated infrastructure investments may increase short-term debt levels, but planned reductions in healthcare and education spending are anticipated to facilitate deficit elimination. Meanwhile, Quebec faces significant challenges, with the report indicating the province is under pressure from weak demographic trends, economic instability, and heightened demands for health and education expenditures. However, it suggests that Quebec could return to a modest surplus by 2029 if it implements effective spending restraints.

British Columbia is also grappling with a substantial deficit, but the Report notes that reduced spending and increased natural gas royalties may support its financial recovery in the coming years. The federal government’s infrastructure plans could further benefit the province.

New Brunswick has recently been commended in the report for demonstrating fiscal discipline, although challenges remain due to its aging population and the forestry industry’s vulnerability to tariffs. Nova Scotia is similarly expected to contend with economic slowdown challenges, particularly stemming from insufficient private sector investments and subdued housing activity.

While the Conference Board's projections assume the abatement of trade uncertainties next year, Forbes highlighted the possibility that the provinces' fiscal landscapes could further decline if ongoing tariff disputes with the United States continue.

The Conference Board’s methodology provides a uniform framework for evaluating provincial budget plans, differing from the various scenarios that underlie individual provinces’ spending strategies.