The parliamentary budget officer indicated on Thursday that the upcoming fall budget is likely to reveal a significant surge in Ottawa’s deficit, jeopardizing the government’s previous fiscal targets. According to Jason Jacques, Ottawa’s fiscal watchdog, the federal government is expected to record an annual deficit of $68.5 billion this year, up from $51.7 billion in the previous year. This change suggests that the federal debt-to-GDP ratio is no longer anticipated to decline over the medium term, a crucial fiscal metric for the government.
The latest fiscal and economic projections released by the office serve as a foundation for understanding the current state of federal finances leading up to the Liberals’ fall budget presentation on Nov. 4. Notably, the updated report does not incorporate plans to gradually increase defense spending to meet the revised NATO target of five percent of GDP by 2035, nor does it factor in Ottawa’s proposed cuts in public service spending over the next three years.
Despite the exclusion of certain plans, the report does consider approximately $115.1 billion in net new expenditures over the next five years as announced by the government since the last fiscal update in December. The PBO attributes the rise in deficits to a weakened economy influenced by Canada’s trade tensions with the United States, resulting in lower tax revenues and increased deficits due to heightened capital spending by the Liberals.
The PBO forecasts a real GDP growth of 1.2 percent in 2025 and 1.3 percent in 2026, down from the office’s previous outlook in March. Additionally, nominal GDP, a key indicator of the federal government’s tax base, is projected to be $12.9 billion lower on average from 2025 to 2029 due to the lasting impact of tariffs. With reduced revenues and higher spending, the PBO anticipates that budget deficits will average $26.6 billion higher annually through 2029-30 compared to the March outlook.
Looking ahead, the PBO expects deficits to decrease slightly but remain around $60 billion annually in the coming years. Finance Minister François-Philippe Champagne attributed the heightened deficit to global trade disruptions, emphasizing the government’s commitment to supporting workers and fostering future economic growth. Champagne highlighted Canada’s strong fiscal position among G7 nations and defended the necessity for significant investments for long-term economic prosperity.
In response to concerns raised by Jacques regarding the government’s fiscal anchors, Prime Minister Mark Carney affirmed that these anchors are still intact. Champagne reassured that the Liberals’ election pledges to reduce the deficit-to-GDP ratio and balance the operating budget within three years align with the government’s fiscal goals. Despite the challenges, the PBO report indicates a planned reduction in the deficit as a share of GDP through 2029-30, with projections generally exceeding those outlined in the spring Liberal platform.
Under Prime Minister Justin Trudeau’s leadership, the Liberal government had prioritized a declining debt-to-GDP ratio and a deficit cap of one percent of GDP as key fiscal anchors. However, the PBO projects that the total debt as a share of GDP will increase to 43 percent over the medium term, up from 41.7 percent last year, as deficits consistently surpass one percent of GDP. Jacques, who assumed the role of parliamentary budget officer on an interim basis, awaits approval for a permanent appointment from the House of Commons, with the Conservative Party advocating for his continued tenure.
