Despite mounting economic headwinds, including a trade war with the United States and a slowing economy, Canada’s provinces are expected to gradually reduce their fiscal deficits in the coming years, according to a new report from the Conference Board of Canada.
The think tank’s report, released Tuesday, outlines how provinces—still reeling from pandemic-era deficits—are now being further tested by tariffs, declining revenues, and demographic pressures. Nonetheless, the report forecasts cautious optimism, with provincial governments projected to rein in spending and narrow deficits by the end of the decade.
Many provinces have budgeted contingency funds to support workers and key industries affected by the tariff dispute. At the same time, provinces are partnering with the federal government to launch major infrastructure projects, pushing capital spending higher in the near term.
But slowing economic activity is undercutting revenue streams. “Less job creation, lower household income, and weaker corporate profits all translate into lower tax revenues,” explained Richard Forbes, principal economist at the Conference Board. He also noted that Canada’s decision to cap immigration is expected to stall population growth, further impacting provincial revenues and labour supply.
Compounding the challenge is the aging population. With more baby boomers retiring, income tax revenue is shrinking while health-care demands are rising. Newfoundland and Labrador, for example, is projected to lose 10,000 residents over the next five years, while Quebec and the Maritime provinces are also expected to feel the demographic pinch.
One exception is Prince Edward Island, which has bucked the trend. A 25% population increase over the past decade has lowered its median age and boosted its economic outlook, offering a potential model for other regions.
The report assumes the economy contracted in Q2 due to trade tensions but forecasts modest growth resuming later in the year. By the end of the decade, most provinces are expected to take a more cautious fiscal approach, mirroring the federal government’s plan to balance its operating budget over the next three years.
Some provinces are already on track for recovery. Saskatchewan and Alberta are forecast to return to budget surpluses before 2030, buoyed by younger populations and partial immunity from tariff shocks. Alberta and Newfoundland and Labrador, however, still face long-term uncertainty due to the volatility of the oil and gas sector, despite plans to pivot towards renewable energy.
Ontario is also expected to balance its budget by the decade’s end, with infrastructure investments initially driving debt higher but long-term plans to moderate health and education spending contributing to fiscal stabilization.
Quebec faces one of the toughest paths, hemmed in by slow population growth, rising demand for services, and ongoing economic uncertainty. Still, the Conference Board projects the province could return to a modest surplus by 2029, if it implements significant spending restraint.
British Columbia, currently facing a steep deficit, may benefit from rising natural gas royalties and a gradual spending slowdown. Federal infrastructure funding could also ease the pressure.
Meanwhile, New Brunswick has earned praise for its recent fiscal prudence, though an aging population and the tariff-exposed forestry sector remain revenue risks. Nova Scotia is expected to struggle with slower economic growth, constrained by a lack of private investment and housing activity.
Forbes warned that if trade tensions with the U.S. continue beyond next year, provincial finances could deteriorate further. The strength of the Conference Board’s analysis, he said, lies in applying a uniform scenario to all provinces—offering a clearer national picture than the varying assumptions behind individual provincial budgets.