LARGER PROJECTED DEFICIT IN FY26 FROM HIGHER SPENDING, LOWER REVENUE
- PEI’s fiscal update, published Thursday, December 18th, revised the budget balance forecast for fiscal year 2025–26 (FY26) to -$367.4 mn (-3.2% of nominal GDP) (chart 1). The latest outlook sees the province’s deficit for the year nearly double what was projected in the Spring operating budget (-$183.9 mn, -1.7%) as the impact of lower projected revenue combines with higher projected spending.
- Total revenue for FY26 was revised down $58.6 mn (-1.8%) compared to the Spring operating budget. Nearly half of the decline in projected total revenue is reduced income from taxes (-$23.6 mn, -1.4%), licenses and permits (-$2.1 mn, -4.3%), net income from GBEs (-$1.7 mn, -2.9%), and federal transfers (-$2.9 mn, -0.2%), which are partially offset by higher fees and services (+$5.5 mn, 4.7%), and investments/Sinking Fund (+$2.6 mn, 8.1%). Meanwhile, more than half of the drag to projected total revenue in FY26 comes from Other Revenue (-$36.1 mn, -77.3%) owing to the accounting requirement that the tobacco litigation payment be recorded in the previous fiscal year. Total revenue for FY26 is now projected to be up 5.2% year-over-year.
- Total expenditure was revised up by $124.8 mn (+3.5%) in FY26 relative to the Spring Budget estimates. More than half of the increased in program spending is concentrated in Health PEI, that has raised their projected expenditures by $70.9 mn (+6.6%) due in part to utilization in out-of-province health services and funding for staffing and collective agreement settlements. Other departments that contributed to the higher spending outlook include PEI Agricultural Insurance Corporation (+$20 mn, 32.8%), Social Development and Seniors (+$13.8 mn, 6.3%), and General Government (+$13.5 mn, 28%).
- The net debt projection for the end of FY26 was raised to $3.73 bn, up $172.4 mn (+4.8%) relative to the Spring Budget owing to the higher deficit. Net debt levels are projected to rise 23.3% year-over-year from debt levels at the end of FY25, of which $484.2 mn is from the acquisition of tangible capital assets as presented in the fall capital estimates, largely unchanged from previous plans. While revised estimates of historical GDP provide a stronger hand-off for the province’s debt burden at the end of FY25, estimated at 27.8% of nominal GDP versus 29% previously, the sharp increase in the level of net debt this year is projected to raise the burden to 32.9% of nominal GDP by the end of FY26 (chart 2). Projections for GDP growth in 2025 were left unchanged in nominal terms at 4.3% and down 0.1 percentage points in real terms to 2.4% relative to the Spring Budget.
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