High spending and more borrowing common theme across Canada
As temporary COVID-related support programs wind down in 2022, Canadian governments could reasonably be expected to stop accumulating debt and begin re-establishing balanced budgets. Instead, this year’s budget season saw many provincial governments and the federal government continue to run deficits and increase spending and debt, even with an unexpected influx of revenue. This blog post summarizes the key takeaways from several budgets across Canada.
After running a $113.8 billion federal budget deficit last year, the Trudeau government forecasts a $52.8 billion deficit in 2022/23 and further deficits for at least another four years. These deficits will occur despite an influx of federal revenue. Indeed, projections show federal revenues will be $30.5 billion higher in 2022/23 than estimates in Budget 2021. Simply put, the government opted not to reduce the deficit significantly and instead plans to increase program spending an additional $22.4 billion this year compared to the previous budget. Spending on new programs such as national dental care and daycare feature prominently in the budget. Net debt (total debt minus financial assets) is expected to climb by more than $100 billion by 2026/27 and annual interest payments are projected to increase from $26.9 billion to $42.9 billion over the same timeframe. There continues to be no timeline for a balanced federal budget.
British Columbia’s provincial budget projects a $5.5 billion operating deficit this year, with deficits continuing over the forecast horizon until at least 2024/25. While provincial revenues are $5.3 billion higher than projected in Budget 2021, the government simultaneously increased program spending by $5.0 billion leading to effectively no improvement in the budgetary balance. Net debt will reach a forecasted $88.8 billion by 2024/25 and the debt-to-GDP ratio will remain significantly higher than pre-COVID levels at 22.3 per cent. Capital spending on infrastructure will increase significantly while program spending on items such as health care also continue to grow. While the government said last year it would outline a detailed plan this year to balance the budget, no such plan was included.
The Alberta budget projects a $511 million surplus in 2022/23 with surpluses continuing in the following two years. However, the improved fiscal position (the province was originally projected to incur an $11.0 billion deficit) is almost entirely due to higher resource revenue fuelled by a rebound in commodity prices, which risks more deficits in the future when resource revenues inevitably decline. Projected net debt will be reduced modestly from $65.1 billion in 2022/23 to $63.9 billion in 2024/25. Program spending (total spending minus interest costs) will be reduced in 2022/23 as the pandemic subsidies and remain relatively flat over the next two years. No new taxes were introduced.
The Ontario budget projects a $19.9 billion deficit in 2022/23, with further deficits planned until 2027/28. Provincial revenues are expected to climb by $8.3 billion relative to the fall fiscal update, but an $8.8 billion increase in program spending will more than offset this additional revenue. Net debt is forecasted to reach $428.7 billion by the end of 2022/23, which is an increase of $75.3 billion from pre-pandemic levels. Net debt-to-GDP will increase between 2021/22 and 2022/23 and stabilize around 41.4 per cent in future years. While the targeted date to return to balanced budgets (2027/28) represents a two-year improvement from last year’s budget forecast, this plan is both unambitious and troubling since red ink is expected to persist throughout a possible second term for the Ford government if it’s re-elected this June.
The Atlantic provinces have also largely opted for increased government spending, deficits and debt in their budgets this year. Prince Edward Island and Nova Scotia’s budgets project deficits of 1 per cent of GDP this year, with further deficits projected in future years and no set date for a return to budget balance. Economic recovery from the pandemic has led to strong provincial revenues in both provinces. P.E.I. projects revenue to be $84 million higher than expected in last year’s budget, while Nova Scotia expects a $672 million improvement. Unfortunately, governments plan to mostly spend this windfall, with program spending up $46 million in P.E.I. and $369 million in Nova Scotia.
Newfoundland and Labrador continues to face one of the most challenging fiscal situations in Canada. While the province’s deficit has been reduced, the government abandoned its own plans for spending control, increasing spending by nearly $1 billion over what was planned in last year’s budget. The deficit is projected at 0.9 per cent of GDP, which is middle of the pack in Canada. However, this contributes to the largest per-person debt burden in the country, with no return to balance projected until at least 2026/27.
New Brunswick stands as the lone fiscal bright spot in the east. A small projected surplus of 0.1 per cent of GDP makes it the only province not relying on deficit spending through the entirety of the pandemic. The government plans to keep spending in line with revenues, expecting surpluses in each of the next two years. As a result, debt (as a share of GDP) is projected to fall from 30.1 per cent this year to 28.2 per cent in 2024/25.
The table below compares estimates for the 2022/23 fiscal year on several items such as the deficit-to-GDP, debt-to-GDP, program spending, interest costs per person and timelines for balanced budgets. Of note, government interest costs exceed $550 per person in every province. Alberta and New Brunswick are the only two provinces on track to run surpluses this year. The earliest timeline for a balanced budget among other governments is four years from now (in 2026/27) for both Saskatchewan and Newfoundland and Labrador. Four governments refrained from specifying any balanced budget date while Manitoba, Quebec and Ontario aim to achieve balance near the end of the decade.
Budget Season Summary, 2022/23 Projections
|Budgetary Balance to GDP||Net Debt of GDP||Interest costs per person ($)||Program spending per person ($)||Year of next balanced budget|
|BC||-1.5%||18.9%||551||13,189||No date given|
|NS||-1.0%||34.9%||679||12,672||No date given|
|PEI||-1.0%||29.8%||787||15,203||No date given|
|Federal||-2.0%||48.9%||696||11,235||No date given|
Sources: Canadian Government Budgets (2022); Fiscal Reference Tables (2021); calculations by authors.
Persistent deficits and high levels of spending were a common theme for most Canadian governments this budget season. As debt levels and interest rates rise, debt interest charges will continue climbing and consume a higher percentage of revenues moving forward. It’s crucial that governments exercise more caution over spending and borrowing.