Canada’s provinces are leading investment boom, RBC says

RBC assistant chief economist Cynthia Leach says the public sector is playing a larger role in Canada’s investment boom than standard measures suggest.

In a recent report, Leach said public investment accounts for a bigger share of capital spending than commonly understood, with provinces carrying much of the load.

“Public investment accounts for a larger share of Canada’s capital spending than commonly understood, and provinces are the heavy hitters,” Leach said.

Macroeconomic accounts put the government share of capital spending at 18% in 2025, but that excludes government business enterprises such as BC Hydro and Metrolinx. Including those entities, the public share rises to 26% of total capital spending and 40% for non-residential tangible assets.

Leach said provinces own 45% of public capital assets and have historically funded most senior-government capital spending.

Using public accounts data for Ottawa and the four largest provinces, RBC estimates provinces funded at least 75% of senior-government capital spending in 2024-25, excluding government business enterprises and municipalities.

Leach said post-pandemic capital spending pushed provincial debt higher after provinces emerged from COVID-19 with debt-to-GDP ratios mostly intact, helped by Ottawa absorbing much of the pandemic support.

Infrastructure deficits and rapid in-migration then drove capital spending higher, while low interest rates initially kept the added debt serviceable.

She said the acquisition of non-financial assets accounted for 26% of provincial net borrowing from 2021 to 2025.

But provincial capacity is becoming more constrained. Based on current plans, RBC expects gross real self-funded capital spending by the four largest provinces to peak in 2026-27 before falling 1% in 2027-28 and 15% the following year.

Slower population growth, deficit-reduction commitments, health care demands, higher interest rates and other pressures should keep provincial budgets tight.

THe economist said Ottawa’s funding role is likely to grow, including through higher defence spending, capital transfers and programs such as Budget 2025’s Building Canada Fund.

The federal government is also increasing support for provincial government business enterprises through tools such as the Clean Electricity Investment Tax Credit and concessionary financing from the Canada Infrastructure Bank.

Expanded grids, remote roads and other public infrastructure could help attract private investment in areas such as critical minerals, greener resource development, advanced manufacturing and AI data centres.

But she argued that Ottawa must avoid crowding out provincial capital spending or weakening sustainable infrastructure funding models.

“Getting the federal–provincial balance right will be critical,” Leach said. “Canada’s planned investment boom hinges not just on how much Ottawa spends, but on whether that spending genuinely adds to the national capital stock.”

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