Newfoundland and Labrador: 2026–27 Budget

FISCAL OUTLOOK DETERIORATES DESPITE HIGHER OIL PRICES

• Bottom line: In its first budget, Newfoundland & Labrador’s new government has implemented a number of its campaign promises, including several tax cuts and increases to health spending. This comes at the cost of projecting sizeable deficits across the forecast horizon, despite the province already having an elevated debt burden. However, revenue performance could end up stronger in the near-term thanks to high oil prices, and in the longer-run could be significantly impacted by the final version of the agreement with Quebec regarding Churchill Falls.

• Budget balance: estimated to be -$729 mn (-1.7% of nominal GDP) in FY26, with a smaller deficit of $688 mn (-1.4%) in FY27 that expands to around $1.1 bn (2.1–2.2%) across FY28 through FY30 before pulling back to -$835 (-1.6%) in FY31 (chart 1).

• Economic assumptions: GDP is assumed to grow 5.5% in real terms and 10% nominal in 2026, up from an estimated 4.8% real and 3.3% nominal in 2025.

• Net debt: estimated to be 44.7% of nominal GDP in FY26, down from 45.6% in the mid-year update, and falling to 43.5% in FY27 owing to nominal GDP growing faster than net debt levels (chart 2).

• Borrowing requirements: $3.9 bn of gross borrowing in FY27, down from $4.1 bn in FY26.

OUR TAKE

Newfoundland and Labrador’s Budget 2026 plans for deficits over the outlook as the new government implements a number of campaign promises. The budget balance for fiscal year 2025–26 (FY26) is estimated to be -$729 mn (-1.7% of nominal GDP), roughly double the deficit planned in last year’s budget, and is expected to ease to -$688 mn (-1.4%) in FY27. The deficit is then projected to fall further into the red, with deficits around $1.1 bn (~2.2% of GDP) over FY28 through FY30, owing to a weaker revenue outlook amid tax cuts coupled with higher spending plans. The deficit is then expected to fall to $835 mn (1.6%) in FY31.

Total revenue was revised down by $1.35 bn across FY27 through FY30 relative to last year’s budget. Revenue is projected to increase 1% annually on average over the outlook, increasing from $10.8 bn in FY27 to $11.2 bn in FY31, but contract 3.5% in FY28. Elevated oil prices are providing a revenue windfall in the near term, with oil royalties estimated to have a $2 bn impact on the budget’s bottom line in FY27. The Budget assumes Brent oil prices will average $79 (USD/barrel) this year, up from $72 assumed in last year’s budget, before easing to $71 in FY28 and gradually rising each year thereafter albeit along a lower path than the previous outlook. Tax cuts will pose headwinds to revenue growth but keep more money in taxpayers’ pockets. The province is permanently reducing the gas tax which is estimated to save consumers $67 mn annually. Other measures include increasing the Basic Personal Exemption amount to $15,000, and reducing the Small Business Tax Rate to 1% by January 1^st, 2028. Longer-run risks to the revenue outlook could come from significant changes to the electricity MOU signed with Quebec.

Total expenses were revised up by $3.9 bn across FY27 through FY30 in the new budget relative to last year’s outlook. Expenses are projected to grow 1.1% annually from $11.5 bn in FY26 to $12.1 bn in FY31 as the new government follows through on campaign promises. Spending on health care is expected to account for approximately 42% of expenses, the largest share by sector and up from 40% in last year’s budget, as the province aims to improve access to health care services and providers. Other affordability measures include increasing the Seniors’ Benefit by 20%, and expanding the Newfoundland and Labrador Child Benefit to 3,000 additional children. The budget also plans for $1.1 bn of investments in infrastructure for health care facilities, schools, housing, roads, and municipal infrastructure.

Net debt is estimated to be $19.5 bn at the end of FY26, approximately 44.7% of nominal GDP, a lower handoff from the $19.9 bn (45.6%) projected in the mid-year fiscal update and in line with last year’s budget expectations. The province’s net debt level is planned to rise to $20.8 bn in FY27 with the debt burden as a share of GDP decreasing to 43.5%, as nominal GDP is assumed to grow 10% in 2026 supported by higher prices of commodity exports. The Budget assumes that the province’s real GDP will accelerate further amid the oil price shock, increasing 5.5% in 2026, up from 4.8% in 2025, grow 3.9% in 2027 and easing thereafter, as elevated oil prices should support the province’s exports, while headwinds from tariffs and slower population gains weigh on potential growth.

Gross borrowing requirements are projected to be $3.9 bn in FY27, down from $4.1 bn in FY26, while new net borrowing is projected to increase to $2.9 bn in FY27, up from $2.6 bn in FY26, and will likely remain elevated over the outlook owing to plans for deeper deficits as opposed to small and growing surpluses in last year’s budget.