Every Canadian province that has released a budget this year is projecting a deficit in 2026–27, a rarity outside recessions, according to an analysis published April 27, 2026 by Marc Desormeaux, Vice President, Policy & Economist at the Business Council of Canada. The widespread fiscal deterioration isn't coming from a weak economy, the report finds—it's the result of higher spending, not weaker revenues. The last time every province ran back-to-back deficits was during the severe early 1990s recession.

The numbers tell a surprising story. Across nine provinces, non-resource receipt projections for 2026–27 were raised by more than $7 billion. For the four largest provinces alone, this year's nominal GDP sits almost $50 billion—more than $2,000 per person—higher than assumed in 2025 budgets. But total spending forecasts for this year are more than $21 billion higher than expected in 2025—three times the tax revenue windfall. Province-wide program spending will approach 20 per cent of GDP in 2025–26 and 2026–27, levels not typically seen outside recessions. Only three of 10 provinces are forecasting record shortfalls as a share of GDP, though debt sustainability metrics largely aligned with prior projections.

According to Desormeaux, who spent the last two years as Ontario Finance Minister Peter Bethlenfalvy's economic advisor, "deficits are mounting because spending is being driven by demographic pressures and the lingering effects of inflation." The report finds that healthcare was the single largest contributor to program expenditure increases in all four large provinces. Health's share of spending is set to reach record highs near 50 per cent in three provinces. The report notes that "inflation's insidious effects—on wage negotiations, contract values, and project costs—are bigger than any government or political party."

The analysis explains that inflation is still influencing provincial spending through a well-documented cycle. Higher-than-expected inflation that began in 2022 initially boosted tax revenues, temporarily improving fiscal balances. But over time, more sustained pressure on spending eventually outstripped the improvement in revenues. Historical evidence suggests these inflation-related spending pressures might not yet have peaked, while Iran-related commodity price increases add further medium-term risks. The report warns that achieving current healthcare spending targets could be challenging: the Parliamentary Budget Office predicts hefty longer-run annual health spending gains of four to five per cent under stable inflationary conditions.

With fiscal room constrained, the report concludes that Canadians should expect new provincial and federal government measures to try to minimize program spending impacts. This year's budgets already lean that way, emphasizing tax credits linked to capital outlays, investment funds, capped industry support, and regulatory reform. The report predicts the upcoming federal fiscal update will likely show an improved economic outlook and revenue picture, but warns that future budgets will be shaped by tough choices about costs, priorities, and the limits of public balance sheets—regardless of what happens to the economy.