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COMMENTARY: Federal transfers not keeping pace with P.E.I. spending

P.E.I.’s 2026-27 budget includes $3.427 billion in program expenditures and $3.386 billion in revenue, resulting in a modest operating deficit of $41 million. The consolidated deficit, which includes the operating deficit, $201 million in interest charges on debt and $167 million in amortization of capital assets, is projected at $410 million.

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Last year, program spending was $3.403 billion and revenue $3.271 billion, resulting in an operating deficit of $133 million. The consolidated deficit was $450 million, including the operating deficit, $171 million in interest charges on debt and $146 million in amortization of capital assets.

Interest charges on debt and the amortization of capital assets are persistent, non-discretionary costs arising from past deficits and investments. These are called structural fiscal costs.

Structural fiscal costs accounted for nearly 70 per cent of the $450 million consolidated deficit in 2025-26. They are now estimated to make up 90 per cent of the projected $410 million consolidated deficit in 2026-27.

The projected $368 million in structural fiscal costs for 2026-27 is 11 per cent of total revenue, 20 per cent of provincial revenue and 27 per cent of revenue from Ottawa.

The persistent increase in structural fiscal costs presents a significant challenge. Higher deficits and debt levels lead to higher interest charges, which contribute to future deficits and debt accumulation. Capital expenditures create assets that require amortization over time.

Together, these factors create........

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