Days before Members of Parliament are scheduled to vote on the Liberal budget, interim Parliamentary Budget Officer (PBO) Jason Jacques has raised concerns about the government’s financial management, indicating a less than 10 percent likelihood of meeting its deficit targets.
Contrary to his previous remarks in September, where Jacques criticized Canada’s spending as “unsustainable” and “shocking,” he now asserts that, based on the PBO’s framework, the government’s finances, while under strain, are sustainable in the long run.
The report primarily criticizes Finance Canada for altering how it reports deficit financing by segregating capital from operational expenditures. The report contends that the government’s interpretation of capital investments is excessively broad, with the PBO’s analysis suggesting that only $217.3 billion of the $311 billion outlined for capital spending between 2024-25 and 2029-30 should be classified as such.
Given the subjective nature of defining capital investments, the report recommends establishing an independent expert body to determine qualifying federal spending categories and measures as capital investments.
Prime Minister Carney’s decision to separate day-to-day and capital spending reporting aimed to clarify the distinction between borrowing for government operations and borrowing for investments. The government defines capital investments broadly, encompassing any expense contributing to public or private sector capital formation, either on the government’s balance sheet or elsewhere, beyond the limits set by the System of National Accounts.
The budget pledges to balance day-to-day government spending for programs and transfers within three years, following Carney’s commitment. However, the PBO report suggests that without the expenditures announced in the 2024 fall economic statement and the 2025 budget, operational spending could have reached a surplus as early as 2026-27. The measures introduced since then are projected to keep the operating budget in deficit until 2028-29, extending beyond the government’s forecasts.
While the federal government predicts an increase in the deficit-to-GDP ratio to 2.5 percent in 2025-26, declining to 1.5 percent by 2029-30, the PBO report casts doubt on the likelihood of a consistent annual decline through that period, estimating a mere 7.5 percent chance of such a scenario.
According to Jacques’s report, Canada’s debt as a share of GDP is anticipated to decrease over the next three decades, indicating a sustainable fiscal position for the Liberal government. Finance Minister François-Philippe Champagne’s press secretary, John Fragos, emphasized that the budget addresses long-standing growth and productivity challenges, taking a sustainable, forward-looking approach.
Former Parliamentary Budget Officer Kevin Page rated the Liberal budget with a B for fiscal responsibility, affirming the sustainability of Canada’s fiscal structure despite increased debt burdens. The government appointed Jacques in early September for a six-month term but is now seeking a permanent replacement with specific qualities.
During a speech in Calgary, Conservative Leader Pierre Poilievre accused Prime Minister Mark Carney of mislabeling day-to-day operating spending as investments, predicting that the government will fall short of its deficit targets, leading to adverse impacts on Canadians.