Opinion: Deteriorating provincial finances are throwing the burden of growth back on Ottawa

The federal government’s agreement this week to provide up to $10 billion in financial support for the Gull Island hydroelectric project is notable for more than its size. It also offers a glimpse of how the Carney government’s broader economic agenda will have to be financed.

For decades, federal governments have relied on a familiar model to advance national economic priorities: Ottawa puts money on the table and uses that funding to leverage additional investment and action from provinces.

But that model depends on provinces having the fiscal capacity to come along.

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The Carney government is pursuing an unusually ambitious agenda, with plans to mobilize hundreds of billions of dollars in investment in infrastructure, energy, housing, defence and other areas. At the same time, provincial finances are becoming increasingly constrained.

That combination could force a significant change in the traditional federal-provincial bargain. Ottawa may have to assume a larger share of the cost and financial risk of Canada’s growth agenda rather than relying as heavily on provincial governments to match its ambitions.

In Newfoundland and Labrador, Ottawa has committed up to $10 billion in financial support tied to the redevelopment and expansion of Churchill Falls , the Gull Island hydroelectric project and associated transmission infrastructure.

British Columbia’s recent agreement with Ottawa also illustrates the shift. The federal government has committed billions toward major transportation, energy and economic-development projects, while B.C. will contribute to workforce training and childcare investments. Instead of relying on the province to shoulder a proportional share of project financing, Ottawa is assuming a larger role in providing upfront capital, helping advance national priorities amid growing provincial budget pressures.

Quebec’s pre-election fiscal update , released this week ahead of the provincial campaign, offers a clear illustration of the emerging provincial constraints. Returning to balance depends on significant spending restraint and economic assumptions that leave little room for disappointment. With population growth expected to remain weak, the province is counting on strong per-capita economic growth, while warning that a tariff-driven recession could erase almost $11 billion in revenue over five years.