British Columbia: Q1 Update 2025

While the Government of British Columbia’s budget deficits are larger than projected in Budget 2025 External link., the near-term deterioration in the fiscal position was modest given the circumstances. The deficit is now expected to be $11.6B in the 2025–26 fiscal year (FY26), $0.7B larger than in the budget (graph 1). However, the outlook doesn’t look as rosy after this year, with deficits deteriorating by $2.4B in each of FY27 and FY28, respectively. That is expected to lead to budget shortfalls of $12.6B and $12.3B in the outer years of the outlook. Table 1 provides more details.

Revenues are now meaningfully lower over the fiscal outlook, largely because of the elimination of the carbon tax. That alone should shave $2.8B, $3.1B, and $3.4B from government revenues in each of the next three fiscal years. However, while the one-time revenues of $2.7B from the tobacco settlement should largely offset this drag in FY26, it isn’t expected to be repeated in later years.

In contrast to revenues, lower program expenses are likely to make the deficit smaller than in Budget 2025. Reduced spending with the elimination of the climate action tax credit—equivalent to $0.7B this year and $1.0B in each of the following fiscal years—should do the major lifting. At the same time, unplanned fire management costs this year are eating a chunk of this newfound headspace, and risks doing so again in the years ahead. That said, the provincial government cited that it is on track to meeting its three-year, $1.5B expenditure-management target first announced in Budget 2025.

BC’s shifting fiscal forces have also come up against the backdrop of an economy that is deteriorating more quickly than previously projected. The Government of British Columbia now expects real GDP growth to be 0.3 percentage points lower this year (to 1.5%) and 0.6 percentage points lower next year (to 1.3%) than budgeted for in March. The impact of tariffs and a slowing housing market are largely to blame but less so than in the alternative scenario in the budget. Growth in nominal GDP—the broadest measure of the own-source tax base—should fair modestly better than real GDP. And after a projected underperformance this year, the fiscal forecast now bakes in a higher price for natural gas next year and the year after.

Putting this all together, larger deficits are expected to push BC’s provincial debt higher (graph 2). However, the debt-to-GDP ratio has only increased marginally relative to Budget 2025 and is anticipated to remain below that of Ontario and Quebec over the course of the outlook. Debt servicing costs are also likely to be more elevated over the forecast than in the budget but still remain below historical highs. Looking at borrowing requirements, they are expected to increase by $4B in FY26, $2.9B in FY27, and $1B in FY28 relative the Budget 2025 plan to $35.1B, $36.0B and $35.7B, respectively.