Federal deficit shrinks while provincial red ink piles up
Saskatchewan’s position deteriorated too, moving from a planned surplus to a $427 million deficit for year-end, driven by higher health-care costs and unbudgeted wildfire response spending.
Alberta’s picture illustrates that volatility most sharply. The province budgeted a $9.4 billion deficit for 2026-27, based on an oil price assumption of USD$60.50 a barrel. This shifted to a projected $2 billion surplus within months, after the US-Iran conflict pushed prices to around USD88 a barrel. For advisors, that swing in either direction is the point: resource-dependent provinces can move dramatically within a single fiscal year.
The Fraser Institute’s June analysis, published before Alberta’s reversal, puts a number on what that adds up to for ordinary Canadians. It found every province along with the federal government is running a deficit in 2025/26, with no government projecting a return to balance in 2026/27. It also estimated that combined federal and provincial interest costs could run as high as $3,348 per taxpayer this year.
“Interest must be paid on government debt,” said Jake Fuss, Fraser Institute’s director of fiscal studies. “The more money governments spend on interest payments, the less money is available for the programs and services that matter to Canadians.”
For planners, that’s the more useful lens than the federal number in isolation. Clients holding provincial bonds, or exposed to sectors sensitive to provincial spending (health care, education, infrastructure), are looking at a fiscal trend moving in the opposite direction from Ottawa’s.
