Tobacco settlement drives B.C. government deficit $3.2 billion below forecast | Daily Hive

Tobacco settlement is key reason B.C. government deficit came in $3.2 billion lower than expected

B.C. legislature in Victoria. (Fotogro/Shutterstock)

The Government of British Columbia has ended its latest fiscal year with a significantly smaller deficit than it had projected when the 2025 provincial budget was released, helped by higher-than-expected revenues and slightly lower spending.

Public Accounts for the 2025/2026 fiscal year show the BC NDP-led provincial government recorded a $7.7-billion deficit, compared with the $10.9-billion deficit originally forecast in the 2025 budget.

That means the final shortfall was $3.2 billion lower than expected, or about 29 per cent below the original projection.

You might also like:

However, the improvement was driven mostly by strong one-time government revenues. The provincial government collected $2.9 billion more than budgeted, including a $2.6-billion tobacco settlement and higher-than-expected net income from ICBC.

The tobacco money stems from a $32.5-billion court-approved settlement with Canada’s three major tobacco companies, ending decades of litigation over smoking-related health-care costs.

Provincial revenues were also $1.8 billion higher than what the government had expected as recently as its third-quarter fiscal update.

Spending, meanwhile, came in $344 million below budget, largely because some contingency funding was not used.

The government also says it exceeded the cost-cutting target introduced in Budget 2025. It had aimed to find $300 million in savings during the fiscal year, but ultimately reported $467 million in reduced spending through measures such as lower travel, office, conference and event expenses, along with staffing adjustments, voluntary retirements, and hiring restrictions.

However, the provincial government continued to add substantially to its overall debt as it ran a deficit and funded major capital projects.

Taxpayer-supported debt increased by $18.4 billion during the fiscal year. The taxpayer-supported debt-to-GDP ratio reached 26.3 per cent, which the provincial government asserts remains the second lowest among Canadian provinces.

At the same time, the provincial government spent approximately $11 billion on taxpayer-supported capital projects, about $1 billion more than during the previous fiscal year.

That included $4.1 billion for transportation infrastructure, $3.1 billion for health-care facilities, and $2.8 billion for new and improved elementary and secondary schools and purpose-built student housing at post-secondary institutions.

The 2026 provincial budget announced earlier this year forecasts a new historic record deficit of $13.3 billion in the current 2026/2027 fiscal year, before falling to $12.17 billion in 2027/2028 and $11.44 billion in 2028/2029.

Debt servicing costs are one of the driving costs for the provincial government’s operating costs, with such interest costs projected to reach about $6.5 billion in 2026/2027. This is an amount that, if treated like a ministry budget, would rank third behind only health care and education and ahead of social services/poverty reduction.

With continued major operating budget deficits and a heightened capital budget on the construction of new facilities and infrastructure, provincial debt will jump from $154 billion in 2025/2026 to $183.4 billion in 2026/2027, $209.9 billion in 2027/2028, and $234.6 billion in 2028/2029.

The deteriorating fiscal position has also prompted a series of credit-rating downgrades, with S&P, Moody’s, Morningstar DBRS and Fitch all lowering the provincial government’s ratings in 2026, citing concerns including persistent deficits, rising debt, weakening fiscal metrics, and structural economic challenges specific to B.C.

You might also like: