Irresponsible fiscal management—the main theme of government budgets in 2024

When Canada’s provincial and federal governments recently released their 2024 budgets, every finance minister chose to increase spending and disregard the need for meaningful tax reductions for families and businesses. This blog post summarizes the main insights from nine government budgets in Canada this year.

In this year’s federal budget, the government has again demonstrated its proclivity to increase taxes, spending and borrowing. In 2024/25 alone, federal program spending will reach a projected $483.6 billion—an increase of $16.1 billion compared to the previous budget’s estimates. The Trudeau government is now on track to record the eight highest years of per-person inflation-adjusted spending in Canadian history by the end of 2025/26. Part of this increase in spending will be funded by borrowing, with a deficit of $39.8 billion this year and deficits exceeding $20 billion for the subsequent four years. There’s no plan to return to balanced budgets and debt interest costs are now equivalent to the annual GST revenue collected. Finally, the government is increasing the capital gains inclusion rate from 50.0 per cent to 66.7 per cent for capital gains realized above $250,000, which will deter investment when the country needs to improve productivity and economic growth.

The British Columbia budget projects massive debt accumulation fuelled by high government spending. Including long-term capital spending (i.e. highways and schools), B.C.’s net debt (total debt minus financial assets) is projected to reach a whopping $128.8 billion by 2026/27—a 227 per cent increase since 2016/17, which marked the end of an era of fiscal restraint. In 2024/25 and 2025/26, the government plans to spend a total of $11.2 billion more than planned in last year’s budget. High spending growth will fuel deficits over the next three years, putting immense pressure on provincial finances. Planned budget deficits in 2024/25 ($7.9 billion) and 2025/26 ($7.8 billion) are now more than double the estimates provided in last year’s budget. The B.C. government expects debt interest payments to cost $967 per British Columbian by 2026/27. Debt interest costs siphon off taxpayer money that could instead be used for important services or even to reduce taxes. Other than a introducing a new tax for residential house-flipping, there were no significant tax changes.

In Alberta’s 2024 budget, the Smith government projected small surpluses across the forecast horizon to 2026/27. However, due to high spending, the province may fall back into deficit when relatively high resource revenue declines. Premier Smith recognized this risk and promised to “restrain” spending to help reduce Alberta’s reliance on volatile resource revenue. But while per person (inflation-adjusted) spending is projected to decline, the government increased the overall plan for spending. For instance, total program spending will be $6.4 billion higher from 2023/24 to 2025/26 than projected just three months ago in the 2023 mid-year fiscal update. Put simply, the government must rein in spending and stabilize provincial finances. On the tax front, the Smith government pushed back its promise to create a new 8 per cent tax rate on income below $60,000. The tax change will be fully implemented by 2027, assuming sufficient “fiscal capacity” to do so while maintaining a balanced budget.

After a surprise budget deficit in 2023/24, Saskatchewan’s 2024 budget projects yet another $273 million deficit in 2024/25. This abrupt change in fiscal fortunes—just a year ago the province was projecting surpluses—reflects the Moe government’s ongoing spending problem. Indeed, while total revenue will be relatively strong at a projected $19.9 billion in 2024/25, high spending has wiped out any surplus the province may have had. More specifically, total spending will reach a projected $20.1 billion in 2024/25, with increases projected in all major spending categories and “record” spending in both health and education. Deficits will fuel debt accumulation as net debt will reach a projected $16.3 billion in 2024/25. Correspondingly, debt interest payments will increase to a projected $739 per Saskatchewanian this year. Put simply, the government’s free-spending budget will come with big costs to Saskatchewanians.

The Ontario budget cements the Ford government’s status as a more reckless steward of provincial finances than its predecessor. Per-person (inflation-adjusted) program spending this year is projected to be higher than any year during Kathleen Wynne’s tenure as premier and the Ford government is on track to add nearly $60.0 billion in new debt over the next three years after already accumulating $91.7 billion since taking office. Despite last spring’s plan to run a $200 million surplus in 2024/25, the government now plans to run a $9.8 billion deficit due to a combination of higher spending and lower-than-anticipated revenues. The budget also failed to provide meaningful tax rate reductions for Ontarian families or businesses despite Ford’s campaign promises.

In Atlantic Canada, all four provincial budgets forecasted spending increases in excess of the rate of inflation, a concern given the already-large size of government in the region. However, the provinces find themselves in differing fiscal positions when it comes to debt and budget balance.

In Nova Scotia, the government continues to increase spending rapidly with per-person program spending reaching $14,492, a record high. This results in a relatively large projected deficit, at $467-million, and rapidly rising debt. Net debt is projected to rise by 7.2 percent per year over the next four years, a rate of debt accumulation not seen since the 1990s. The government continues to provide no plan for a balanced budget.

The situation is much the same in Prince Edward Island. The government is increasing spending at an unsustainable rate, with per-person program spending projected to reach $17,187 this year, the highest level in Canada. The government projects a deficit this year and in the following two years, with no plan for a balanced budget. This approach will lead to net debt increasing by more than a third (37.1 per cent) between the government’s first year in office and 2026/27.

Amid strong increases in revenues driven largely by the oil and gas sector, Newfoundland and Labrador missed an opportunity to bring its budget back to balance, instead continuing the Atlantic theme of steep spending increases. The province, which was already the second-highest spender in Canada when it comes to per-person program spending, will increase program spending by 5.3 per cent this year. A spending freeze or even a more modest increase could have brought the province back to a balanced budget so it could begin working on its crushing debt problem. Instead, net debt will grow by nearly $600 million, with per-person net debt reaching $32,807, by far the highest level in Canada. Newfoundland and Labrador’s free-spending approach repeats the fiscal mistakes of the past, which have led it to become Canada’s most indebted province.

New Brunswick stands out as a fiscal bright spot in Atlantic Canada, albeit with some caveats. The government once again projects a balanced budget, its eighth in a row, maintaining the province’s reputation as one of the most fiscally responsible in recent memory. However, the government plans to increase program spending by a projected 6.2 per cent this year, a rate well in excess of inflation plus population growth. The increase in spending means that net debt will rise by $315 million this year, the first increase since 2018/19. Notably, the budget did not introduce any meaningful tax relief, a question that will loom in the runup to a fall election. Maintaining a balanced budget keeps New Brunswick ahead of its peers fiscally, however, spending and debt increases are a concerning departure from past trends, and make it more difficult to introduce tax relief.

The table below compares estimates for the 2024/25 fiscal year on several items such as budgetary balance-to-GDP, net debt-to-GDP, program spending, interest costs per person and timelines for balanced budgets. Of note, government interest costs exceed $690 per person in every province. Alberta and New Brunswick are the only two provinces on track to run surpluses this year. Four provinces and the federal government refrained from specifying any balanced budget date, while other provinces such as Newfoundland and Labrador, Ontario and Saskatchewan kicked the can down the road and hope for a return to black ink within the next two years.

Only a small fraction of provincial governments plan to run surpluses for the 2024/25 fiscal year. Like previous years, the budgets for the vast majority of provinces and the federal government involve increased spending, red ink and mounting debt. This approach to government finances is not prudent and, for several provinces, unsustainable. It’s imperative for Canadian governments to finally walk the walk on fiscal responsibility rather than just speaking empty platitudes.