07:04 AM EDT, 09/16/2025 (MT Newswires) -- British Columbia's budget deficits are running larger than projected in Budget 2025, but the near-term fiscal deterioration is "modest" given the circumstances, Desjardins said.

The provincial deficit is now forecast at $11.6 billion in fiscal 2025-2026, about $700 million wider than budgeted. Shortfalls are expected to deepen by $2.4 billion each in fiscal 2027 and 2028, to $12.6 billion and $12.3 billion, respectively, the bank said.

Desjardins noted that revenue losses tied to the elimination of the carbon tax will cut $2.8 billion, $3.1 billion and $3.4 billion from government coffers over the next three years.

A one-time $2.7 billion tobacco-settlement payment will mostly offset that drag in FY26 but will not recur.

Lower program spending, including the phase-out of the climate action tax credit, saving about $700 million this year and $1 billion annually thereafter, will partially cushion the revenue hit. But unplanned wildfire management costs are absorbing some of that fiscal space and could do so again, Desjardins said. The province remains on track to meet its three-year, $1.5 billion expenditure-management target.

The weaker fiscal outlook comes as economic growth slows. The government now expects real GDP growth of 1.5% in 2025, 0.3 percentage point lower than projected in March, and 1.3% in 2026, 0.6 point lower.

Softer housing activity and tariffs are key drags, though nominal GDP, the broader tax base, should hold up somewhat better. A higher natural-gas price is factored into later years.

B.C.'s debt-to-GDP ratio is seen rising only marginally from the budget and staying below Ontario and Quebec levels. Borrowing needs are projected to climb to $35.1 billion in FY26, $36.0 billion in FY27 and $35.7 billion in FY28, or about $4 billion, $2.9 billion and $1 billion above the Budget 2025 plan, with debt-service costs remaining manageable, the bank said.