Deficits to top $63 billion for years, budget watchdog warns

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OTTAWA — Revenue windfalls from higher oil and resource prices will be swallowed up by Ottawa’s spendthrift ways over the next five years.

That’s the conclusion of a new report released Tuesday by the Parliamentary Budget Office (PBO), which projected a $63.3-billion deficit this fiscal year, with the deficit peaking at $70.2 billion in FY 2027-28 and not dropping below $63 billion through the 2030-31 fiscal year.

“Canada faces a more challenging economic and fiscal outlook than we projected in June,” said Parliamentary Budget Officer Annette Ryan.

“Additional trade measures and ongoing uncertainty are weighing on growth in real output — what we produce as a country.”

Compared to the office’s June outlook, the PBO now projects deficits will average around $3 billion higher annually through 2030-31 — which by then the PBO pegs the deficit to sit at $67.8 billion, or 1.7% of GDP.

That’s $9.5 billion more than the office predicted back in June.

Increased revenues from taxes padded out the bottom line with a $7.5 billion annual boost — but that’s more than offset by the annual $10.5 billion cost of new measures announced since the government released its spring economic update.

The PBO is now predicting real GDP growth of just 0.9% this year and 1.5% in 2027, blaming the U.S. trade war and Canadian countermeasures announced over the summer.

Fiscal anchors aweigh

In Budget 2025, the Mark Carney government established a pair of fiscal anchors, replacing the Justin Trudeau Liberals’ guardrails, which were blown through in 2024: balancing operating spending with revenues by FY 2028-29, and maintaining a declining deficit-to-GDP ratio.

The PBO predicts only one of those guardrails will be met, forecasting that the government will indeed balance day-to-day spending, with a $6.2 billion surplus, by 2028-29.

As for keeping the deficit on the shrink, the PBO says that ratio will increase in 2027-28, dip the following year, then climb again slightly in 2029-30.

Ryan, however, had a warning.

“A balanced operating budget anchor should not be interpreted as a balanced fiscal position,” she said.

Put away the credit card, says taxpayer watchdog

Franco Terrazzano, federal director of the Canadian Taxpayers Federation, said the growing debt-to-interest bill should be setting off alarm bells in Ottawa.

“Paying interest on the federal debt will cost each Canadian $1,400 this year and that’s unaffordable and unacceptable,” he said.

Terrazzano also took aim at the prime minister’s pledges of spending restraint, saying the PBO’s numbers show the government is on track to spend $13.5 billion more this year than it planned in Budget 2025.

“Carney needs to put down the credit card, pick up some scissors and cut spending,” he said.

John Fragos, a spokesperson in Finance Minister Francois-Philippe Champagne’s office, pushed back against the PBO’s findings, saying the government will balance its day-to-day spending a full year ahead of schedule.

“The upcoming budget will detail as much, and the principled assumptions behind the accelerated timeline, including our adherence to strict anchors,” he said in a statement to the Toronto Sun.

Separating capital and operating spending is common in a number of nations, he said, which allows governments to “spend less on operations, giving us more to invest in capital expenditure.”

Fragos pointed to Canada’s AAA credit rating and what he described as the lowest net debt-to-GDP ratio in the G7.

bpassifiume@postmedia.com
X: @bryanpassifiume

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