Liberal budget deficit likely to climb to $92 billion by 2025/26: report
As the government of Prime Minister Mark Carney continues to delay tabling a budget, a new report calculates the estimated cost of implementing the Liberal government’s fiscal plan.
As the government of Prime Minister Mark Carney continues to delay tabling a budget, a new report calculates the estimated cost of implementing the Liberal government’s fiscal plan, which would massively increase Canada’s structural debt.
A new report from the C.D. Howe Institute calculates the estimated deficit in the Carney government’s next budget based on the Liberals’ stated spending commitments, revenue collection changes, and economic projections.
The report found that the federal government and Parliamentary Budget Officer have been massively underestimating their projected budget deficits, with their projected $29 billion deficit in fiscal year 2028/29 more likely ending up being $71 billion.
With the cost of the Liberal government’s implemented fiscal policies and policy initiatives promised in their electoral platform, the Liberals are expected to massively increase the budget deficit to an annual average of $78 billion over the next four years. With this projection, the deficit in 2025/26 is likely to reach over $92 billion.
In the event that the Liberals’ speculated savings do not manifest, the annual average deficit over the next four years would be $86 billion, with a cumulative deficit of almost $350 billion. This would result in an increase in Canada’s net debt-to-GDP ratio to 44 per cent.
The increase in the national debt would largely be driven by the Liberal government’s commitment to increase defence spending substantially, their party platform’s policy initiatives, and an economic downturn resulting from the imposition of tariffs by the United States and Canada’s counter-tariffs.
“The Liberal election platform, along with the commitment to much higher defence spending, amounts to a radical change in the nation’s finances with long-lasting adverse consequences,” said C.D. Howe Institute President William B.P. Robson.
The report also slams Carney’s commitment to separate the federal government’s “operating” and “capital” spending, arguing that the separation is unnecessary and obfuscates the government’s true deficit spending.
“The large deficits projected in this update cannot be downplayed or disguised by dividing the budget into two new categories – operating and capital – and targeting a balanced operating budget only, as proposed in the election platform,” reads the report.
The report notes that the federal government already uses accrual accounting, which spreads capital costs over their useful life instead of recording them as an expense in the first year.
“As more capital assets are added – such as ports or defence equipment – amortization expenses will rise. But amortization reflects the current consumption of capital assets and should remain part of the bottom line,” reads the report.
“Excluding it would disconnect the federal budget presentation from the audited financial statements – a serious blow to transparency and accountability.”
The report calls on the Carney government to drop some of the costlier platform initiatives the party had promised in the 2025 election, to find deep savings in the government’s existing operational spending, and rely less on income taxes and more on consumption taxes like the sales tax.
The report also calls on the Carney government to cut transfers to provinces and territories, though Carney has explicitly said that he will not consider any cuts to federal transfers.
Finance Minister François-Philippe Champagne said that the government will not be tabling a budget this year; instead, it will only commit to presenting a fall economic statement.
The last full federal budget was delivered by Finance Minister Chrystia Freeland on April 16, 2024, marking the final budget under former prime minister Justin Trudeau.