Tobacco settlement helps B.C. deficit come in $3.2 billion below forecast

British Columbia ended the 2025-26 fiscal year with a $7.7-billion deficit, $3.2 billion lower than the $10.9-billion shortfall forecast in the 2025 budget, according to the province’s public accounts.

The improvement was driven largely by revenue rather than a fundamental reduction in spending. Revenue was $2.9 billion above budget, including $2.6 billion from a tobacco settlement and higher-than-expected net income from ICBC. Spending came in $344 million below budget, largely because some contingency funding was not used.

The tobacco proceeds came from a court-approved $32.5-billion settlement between Canadian governments and the country’s three major tobacco companies over smoking-related health-care costs. Provincial revenue was also $1.8 billion above the amount forecast at the third-quarter update.

The government said it exceeded its $300-million cost-cutting target, reporting $467 million in reductions through lower spending on travel, offices, conferences and events, as well as staffing changes, voluntary retirements and hiring restrictions.

Taxpayer-supported debt nevertheless rose $18.4 billion during the year, while the province spent about $11 billion on taxpayer-supported capital projects. That included $4.1 billion for transportation infrastructure, $3.1 billion for health-care facilities and $2.8 billion for schools and post-secondary student housing.

The 2026 budget forecasts a $13.3-billion deficit for 2026-27, followed by deficits of $12.17 billion and $11.44 billion in the next two years. The province projects debt to rise from $154 billion in 2025-26 to $234.6 billion by 2028-29; S&P, Moody’s, Morningstar DBRS and Fitch all downgraded B.C.’s credit ratings in 2026.