OTTAWA — The Carney government is poised to post a massive deficit of more than $92 billion during this fiscal year, a new report from a well-respected financial think tank projects, almost double what was forecast just a few months ago by a non-partisan arm of the government.
The report, from the C.D. Howe Institute, also forecasts deficits of more than $77 billion a year over the next four years, also huge increases over what had been expected.
The think tank attributes much of the government’s declining fiscal health to increased spending on defence and other items, the economic effects of the Trump tariffs, cuts to personal income tax and the GST for first-time homebuyers, and the elimination of the digital services tax.
Based on the most current and largely optimistic variables, the report says, federal deficits will remain above $71 billion during each of the following three years and in the fiscal year 2028-29 will be greater than three times what the government itself forecast in its most recent federal budget.
But more likely, the report says, it will likely be a bit worse than that because the report’s authors say that they’re skeptical that all of the government’s plans to increase revenue through promised higher fines, penalties and savings will actually occur.
“It is widely accepted that Canada’s economy is at a critical crossroads,” the C.D. Howe economists write. “So are Canada’s finances – beyond the economic drag of high deficits and rising debt, it is unfair to pass these burdens on to the current young and future generations.”
But the most recent federal budget was now well over a year ago. The government took the highly unusual step this year of waiting until the fall to release its annual budget, more than half-way through the fiscal year.
The report’s authors – William Robson, Don Drummond and Alexandre Laurin – call on Ottawa to improve its accountability by sharing its revenue and spending figures with taxpayers.
The gloomy fiscal forecast bolsters the argument that Canadian government spending at th
e federal, provincial and municipal levels is going from bad to worse.
Just four months ago, the Parliamentary Budget Officer projected that the federal deficit would fall to $50.1 billion during this fiscal year, a slight improvement over the $61.9 billion shortfall recorded in 2023-24. The PBO also said at that time that federal deficits would continue to fall in the ensuring years, unless there were new measures to cut revenue or increase spending.
The C.D. Howe report criticizes the government’s decision to wait until the fiscal year is more than half over before releasing its budget “Delaying a budget until the fiscal year is more than half over is never good, but Canada’s current high-spending trajectory makes this delay especially bad.”
Ottawa is making costly commitments, the report explains, without showing key numbers to the public such as how much more tax it expects to gather, the extent of its new spending and what the increased debt will mean for interest payments.
The report also makes policy recommendations to address the “runaway spending, perpetually high deficits and debt and vulnerabilities Canada should avoid at a time of severe economic challenges.”
C.D. Howe suggests that the Liberal government eliminate or forgo some of its costly platform promises, make deeper cuts in its operating spending, substitute some revenue from less harmful taxation such as the GST, and cut federal transfers to provinces and territories.
The report also criticizes the government’s plan to separate its operating and capital spending. “The large deficits projected in this update cannot be downplayed or disguised by dividing the budget into two new categories.”
National Post
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