• Newfoundland and Labrador projects a $372 million shortfall in 2025-26, delaying plans to balance by a year to 2026-27.
  • Expenditures are set to cross $11 billion mark, jumping 5.1% in 2025-26.
  • This increase will surpass the solid 4.1% projected rise in revenues—which will be boosted by higher oil and mineral production in the province.
  • A worsening deficit will further add weight to the province’s debt burden, which is already the heaviest in the country.

Newfoundland and Labrador’s 2025 budget arrives amid global trade uncertainty, prompting the government to delay plans to balance the budget another year. It’s the latest of a string of provinces that have punted budgetary balance commitments further down the road.

The budgetary shortfall is now projected to deepen to $372 million in 2025-26, more than half of which ($200 million) is coming from a new contingency allowance to address trade-related spending pressures. Some of the expenditure increase will be covered by higher revenues from natural resource production (regardless of ongoing trade uncertainty), but revenue gains won’t be large enough to offset its spending plans which will keep the province’s books in the red for another year.

Strong economic growth expected despite trade uncertainty

Despite global headwinds, the 2025 budget rests on an optimistic economic outlook. Real GDP is forecasted to rise by 4.4% in 2025, marking one of the strongest years for growth in over a decade and the first multi-year streak of expansion since 2017.

Growth will be driven by rising oil and gas production, alongside the anticipated launch of the Valentine gold mine. Together, these developments will support a $448 million increase (+35%) in offshore royalties and mining taxes.

The province also expects long-term gains from the renegotiation of the 1969 Upper Churchill Contract with Quebec, which is projected to bring in an additional $17 billion in revenue over the life of the agreement to 2075—averaging $340 million per year.

Downside risks to the economic outlook, however, remain high due to trade uncertainty. Lower than projected growth could bring down revenues , widening the deficit further in fiscal 2025-26.

Spending momentum picks up

Expenditures are projected to increase by $536 million (+5.1%) in 2025–26, pushing total spending above $11 billion. This represents a significant expansion as it far exceeds the projected rate of inflation (2.5%) and population growth (0.2%), suggesting roughly half of the expenditure increase is tied to new program spending.

Achieving balance by 2026–27 hinges on the government’s ability to reverse course next year, cutting spending by 3.1% and holding that line through the end of the decade—a tall order if trade tensions escalate and economic conditions worsen . Newfoundland and Labrador has little experience cutting spending outright with only two year-over-year spending declines recorded in the last twenty years.

Net debt-to-GDP ratio to rise over next two years

By our calculation, Newfoundland and Labrador’s net debt burden is projected to rise to an estimated 44.4% in 2025-26 from 43.7% in 2024-25—exceeding the 44% projected in last year’s budget.

Under the fiscal plan laid out in Budget 2025, Newfoundland and Labrador will continue to hold the heaviest debt burden in Canada, making the province the least fiscally flexible to buffer the economy from new shocks.

Rachel Battaglia is an economist at RBC. She is a member of the Macro and Regional Analysis Group, providing analysis for the provincial macroeconomic outlook and budget commentaries.

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