• The B.C. government upped projected budget deficits throughout its three-year fiscal plan, including a record $10.9 billion shortfall in 2025-26.
  • Significant risks threaten revenue and expenditure projections—the plan doesn’t incorporate U.S. tariffs into economic assumptions.
  • But it increased the contingencies vote to $4 billion per year to add protection against unexpected expenses.
  • Debt is forecast to soar 70% over the next three years.
  • B.C.’s fiscal situation is on a deteriorating path even though it compares well to most other provinces.

British Columbia’s 2025 budget arrived at a precarious economic moment, just hours after the United States slapped massive tariffs on Canadian imports. The budget underscores the mounting fiscal pressure facing the province as it maintains commitments to protecting health care, education, and affordability measures.

The deficit is set to rise beyond $10 billion in 2025-26 with debt climbing sharply in the coming years. These growing financial burdens, coupled with uncertainty and new trade risks, represent serious challenges.

Growing deficit and cost of expanding services

The B.C. government has charted a course of sustained spending increases over the past several years, opting to invest heavily in health care, housing, and social services. This continued in 2025-26, resulting in a deficit of $10.9 billion, up from $9.1 billion in the revised 2024-25 forecast with further shortfalls exceeding $9 billion in subsequent years.

Budget 2025 outlines nearly $7.7 billion in additional operating spending over three years, primarily directed at health care, education, and social services. This includes:

  • $4.2 billion for health care with major investments in expanding hospital capacity, supporting primary care, and addressing mental health and addiction challenges.
  • $370 million for K-12 education with funding for additional teachers, classroom supports, and reconciliation initiatives.
  • $3 billion for social services including income assistance, disability support, and funding for Community Living BC.

To mitigate some of the expenditure risks, the province boosted its contingencies vote to $12 billion over its fiscal plan. That’s up from $10.6 billion in Budget 2024. The contingencies vote is a prudence measure that sets aside funds to address unexpected or uncertain expenses that cannot be precisely estimated at the time of budget. Any unused portion at the end of the year would lower the deficit.

These commitments respond to pressing social needs, but they come at a time of slowing revenue growth. Revenues are forecast to rise just 1.4% in 2025-26, outpaced by expenditure growth of more than 3%. The result is an expanding gap between what the government collects and what it spends.

Soaring debt

B.C.’s debt is set to skyrocket with continued deficits and ambitious capital spending. The budget forecasts taxpayer-supported debt to jump from $97.7 billion in 2024-25 to $166.5 billion by 2027-28. This represents a nearly $69 billion (70%) increase in just three years.

The key measure of debt affordability—the debt-to-gross domestic product ratio—is also climbing sharply. The ratio is projected to rise from 22.9% in 2024-25 to 34.4% by 2027-28, marking a rapid deterioration in the province’s fiscal position. B.C. still fares better than some other provinces such as Ontario and Quebec, but the pace of debt accumulation raises concerns about long-term fiscal flexibility.

The cost of servicing debt is also rising. Interest payments on taxpayer-supported debt are forecast to increase from 4.3 cents per dollar of revenue in 2024-25 to 6.9 cents by 2027-28. The province is dedicating an increasing share of its budget to debt payments—funds that could otherwise support public services.

U.S. tariff shock: A new threat to B.C.

Even before the U.S. launched a trade war with Canada and Mexico (and China), B.C. faced significant economic headwinds including slower nominal growth, sharply weaker population gains and a lull in capital investment. Now, the situation has become more challenging with the Trump administration’s imposition of new tariffs on Canadian exports.

The impact of tariffs will greatly depend on how long they remain in place, but they threaten to further slow growth and weigh on government revenues—albeit potentially less than in other provinces given B.C. is among the least dependent on the U.S. market, accounting for just more than 50% of the province’s international exports.

The B.C. Ministry of Finance has acknowledged that U.S. trade policies represent a major risk to the economic outlook, but the budget does not incorporate their impact. Instead, it forecasts B.C.’s real GDP to grow by 1.8% in 2025 and 1.9% in 2026—modest but stable projections that could prove overly optimistic. Indeed, the budget offers an alternative economic scenario, which includes permanent U.S. tariffs and has growth essentially stalling in 2025 (up just 0.3%) and then accelerating modestly in 2026 (up 0.8%).

The impact would also likely be felt on expenditures as the government has committed to supporting affected industries through investment incentives, economic diversification, and workforce training programs.

Path to balance delayed

The government has outlined some steps toward expenditure control, including $1.5 billion in expenditure management targets over three years and hiring restrictions within the public service. However, these measures are relatively modest compared to the scale of the deficit.

Crucially, the budget does not set a clear path back to balance, opting instead for multi-year deficits without a definitive timeline for returning to surplus.

The government has resisted tax hikes, but it has implemented new housing-related measures including higher speculation and vacancy tax rates to address affordability concerns.

Fiscal outlook may change in the future

The challenges facing Budget 2025 aren’t unique to B.C.—all Canadian governments this year are tasked with striking a tough balance between the need for sustained public investments and maintaining fiscal responsibility amid looming economic turbulence. B.C.’s decision to stay the course on elevated spending in key sectors demonstrates its commitment to supporting residents, but it comes at the cost of mounting debt and prolonged deficits.

B.C. faces an increasingly uncertain fiscal future with rising borrowing costs, slowing economic growth, and new U.S. tariffs threatening key industries. For now, it can do without a clearer path toward balancing the books, but it will need to address the situation once some of the fog clears.

In the months ahead, the government may need to reassess projections, adjust spending plans, and develop a comprehensive strategy to mitigate the risks posed by U.S. trade policies. Budget 2025 is unlikely to be the final word on its fiscal outlook this year.

Robert Hogue is an Assistant Chief Economist at RBC responsible for providing analysis and forecasts on the Canadian housing market and provincial economies. He joined RBC in 2008.

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