Net debt much worse than we thought: Provinces are hiding the amount of debt they're taking on

Provincial budget season is underway in Canada with Alberta, British Columbia, Quebec, Saskatchewan, Nova Scotia and New Brunswick having already released their budgets. Still to come are Manitoba (March 24) and Ontario (March 26) with releases dates for the remainder of the Atlantic provinces to be determined. Much of the attention during budget season focuses on what will be spent on crucial services such as health and education, and ultimately what the size of the provincial deficit might be. However, as important as the balance between operating expenditures and revenues is, it's increasingly a less-than-transparent measure of what a provincial government is borrowing. If you add up a province's deficits over time and compare them to the increase in net debt over the same period, you'll find that the net debt is increasing a lot more than the deficits would suggest. Indeed, this pattern has been underway for quite some time. The chart below plots for Canada's four largest provinces the accumulated deficit for the period 2015/16 to 2025/26 alongside the increase in the net debt over the same period. The results are quite illuminating. In the case of Ontario, this period saw accumulated deficits of $62.7 billion but the net debt increased by $153.4 billion. Similarly, Quebec's accumulated deficit is $4.2 billion but it has added $52.2 billion to its net debt. B.C. has an accumulated deficit for this period of $22.1 billion but an increase in net debt of $66.0 billion. And Alberta accumulated deficits of $37.2 billion but its net debt increase was a more modest $43.6 billion. What's happening here? For some time now, provinces have been using what are termed "capital budgeting techniques" -- government accounting practices whereby borrowing for new capital spending (i.e. schools, hospitals, highways) is added to the debt independently of program spending. The result is an operating budget deficit (that's reported and includes capital depreciation charges and interest on the debt) and a capital budget deficit that's not reported in the operating budget but is reflected by increases in the net debt. While the case is made that one should distinguish day-to-day operating expenditures from long-term expenditures such as capital that yield benefits over time, the result can be an understatement of the fiscal effects of public borrowing on operating budgets. The implications for debt and public finance can be substantial given the size of planned capital spending programs many provinces have going down the road. Along with increases in program spending, most provinces have undertaken substantial spending in capital infrastructure investment. For example, the Ontario government in its 2025 budget put forth a 10-year capital spending plan for infrastructure totalling $223.1 billion, much of which will be spent on hospitals, schools, colleges and highways. The B.C. government in its 2026 budget committed $52.9 billion over the next three years on building roads, bridges, rapid transit and power transmission lines. The Alberta government in its 2026 budget is committing $28.3 billion in spending over the next three years with a focus on expanding capacity in health and education. And the Quebec government in its 2026 budgetis planning capital investments of $167 billion over the 2026 to 2036 period. Even if budget deficits were somehow eliminated, net debt would continue to soar for years to come. What should provincial governments do? It's not enough to provide an operating deficit in the budget and relegate the discussion of the net debt and its increases to the rear of the budget documents, as is largely the case. Along with the budget deficit being reported up front in statements of operating revenue and expenditure, transparency is enhanced by having an additional line included below the deficit projections that details the change in the size of net debt. The increase in net debt represents the true deficit. This relatively minor reporting change would allow the public to immediately see what the operating deficit is, and the difference between the deficit and the actual increase in borrowing because of capital spending. Making government more transparent and accountable is a good thing and on March 26 the Ontario government should exhibit leadership by implementing this change.