Despite surge of revenue, few Canadian governments expect surpluses in 2023

In the face of high inflation, a possible recession and surge of revenues, Canadian governments largely chose to increase spending and debt, run deficits and avoid making meaningful tax reductions for families or businesses. This post summarizes the key takeaways from government budgets across the country at both the provincial and federal levels.

The federal budget was anything but prudent. The government forecasts a higher-than-anticipated $40.1 billion deficit in 2023/24 and has backtracked from its promise to balance the budget by 2027/28. These deficit projections arise despite a surge in federal revenue. The fiscal plan shows federal revenues will be $27.3 billion higher in 2023/24 than estimated in Budget 2022. But the government chose not to reduce the deficit and instead increased program spending by $16.5 billion while debt charges rose by $11.0 billion relative to last spring’s plan. New measures include an expanded dental care program, a one-time increase to the GST rebate, and several tax credits for alternative energy. Net debt is expected to jump by more than $142 billion over the next five years and, in 2023, the government expects to violate its fiscal rule to reduce debt relative to the size of the national economy.

British Columbia’s provincial budget projects a $4.2 billion operating budget deficit in 2023/24 and substantial debt accumulation over a three-year period. The province will run a deficit despite a $7.5 billion surge in revenue in 2023/24 compared to budget 2022 forecasts. In large part, this is because the B.C. government chose to spend those higher revenues rather than save, with program spending increasing by $7.9 billion compared to the plan in budget 2022. Correspondingly, after accounting for long-term capital spending, the province’s net debt will grow by an incredible $39 billion from 2022/23 to 2025/26. British Columbians will bear the consequences of debt through higher interest costs, which will cost each British Columbian roughly $594 in 2023/24, and potentially tax increases.

The Alberta budget projects a $2.4 million surplus in 2023/24 with surpluses continuing in the following two years. However, Alberta’s surpluses are fuelled by a historic windfall in resource revenue—including oil and gas royalties--which means there is a high risk that the province will return to deficits once resource revenues inevitably decline. This risk is heightened by the Smith government’s proclivity for increased spending. In fact, in Budget 2023, projected program spending was $4.2 billion higher for 2023/24 than budgeted just a few months earlier. Overall, while on the surface the fiscal outlook looks bright, Alberta could be in fiscal trouble again once the province’s record high windfall ends.

Similar to Alberta, the Saskatchewan government will enjoy a projected $1.0 billion surplus in 2023/24 with surpluses continuing in the following three years, largely as a result of a windfall in resource revenues, which in Saskatchewan is fueled by potash and oil royalties. While there was some spending restraint in Budget 2023, should resource revenue return to its 10-year average pre-pandemic, all else equal, the province would immediately return to a deficit. To avoid future deficits in both Alberta and Saskatchewan, the provinces could have used the windfall in resource revenue to reintroduce a rainy-day account, which would constitutionally limit the amount of resource revenue available for annual spending by saving during the good times to help avoid deficits during bad times of relatively low resource revenue.

The Ontario budget projects a $1.3 billion deficit in 2023/24, but the fiscal plan includes a return to surpluses in subsequent years. This represents a substantial improvement relative to last spring’s budget. However, this is primarily due to a surge in revenues rather than spending restraint. Total revenues in 2023/24 are projected to be $16.2 billion higher than anticipated compared to Budget 2022. Program spending will increase by $5.8 billion from previous projections. Net debt is forecasted to jump by more than $34 billion over the next three fiscal years. There were no tax rate reductions offered for families or businesses in the budget despite repeated promises to do so.

Newfoundland and Labrador’s budget projects a $160 million deficit in 2023/24, with a projected return to small surpluses next year and in the following years. While the province’s fiscal position has improved, the province’s situation is similar to Alberta and Saskatchewan as this is largely due to revenue windfalls from the oil and gas sector. While the province did commit to a modest payment to its Future Fund, it missed an opportunity to cut spending and pay down debt, maintaining its status as Canada’s most indebted province (at $30,544 per person this year).

In the Nova Scotia budget, the provincial government doubled down on its approach of increased spending and rising debt. The province is expecting a $279 million deficit this year, a figure that will grow in each of the next two years, with no plan for a return to balanced budgets. Spending is set to increase $1.2 billion over last year’s expectations, with $2 billion in total spending growth over two years (2021/22 to 2023/24), or approximately 15 per cent. Not surprisingly, net debt is on the rise both in absolute terms and relative to the economy. Nova Scotia’s net debt will increase by $1.36 billion this year, to $19.54 billion. Debt as a share of the economy will reach 33.6 per cent this year and is expected to rise to 36.2 per cent by 2026/27.

New Brunswick’s budget presents a rather unique fiscal situation in Canada, as it is the only non-oil producing province in a surplus position. In this year’s budget, the government once again kept spending in line with revenues and is projecting a $40 million surplus, the government’s sixth in a row. The government also confirmed tax reductions to personal income taxes across most income brackets, and is projecting debt as a share of the economy to fall this year and in the coming years, to 23.4 per cent in 2025.

Prince Edward Island just had an election, so the budget will be substantially delayed compared to other provinces.

The table below compares estimates for the 2023/24 fiscal year on several items such as budgetary balance-to-GDP, debt-to-GDP, program spending, interest costs per person and timelines for balanced budgets. Of note, government interest costs exceed $590 per person in every province across the country. Alberta, Saskatchewan and New Brunswick are the only three provinces on track to run surpluses this year. Three provinces and the federal government refrained from specifying any balanced budget date, while Quebec aims to achieve it near the end of the current decade.

Few governments in Canada forecasted surpluses for the 2023/24 fiscal year, despite a surge in revenues. The majority of provinces and the federal government chose to increase spending, debt and/or incur deficits for years to come. This is a worrying trend, as many governments were already on unsustainable debt trajectories before budget season and have now exacerbated the problem. Greater attention must be paid to spending restraint and moving towards persistent balanced budgets in the short term rather than putting off these difficult decisions to some future date.