Days before Members of Parliament are scheduled to vote on the Liberal budget, interim Parliamentary Budget Officer (PBO) Jason Jacques raises concerns about the government’s financial management, indicating a less than 10% likelihood of meeting deficit targets. Despite the critique, Jacques’s recent evaluation differs from his previous comments in September, where he described Canada’s spending as “unsustainable” and “shocking.” Presently, he states that based on the PBO’s framework, the government’s finances, though tight, are viable in the long term.
The report primarily criticizes Finance Canada for altering the method of reporting deficit financing by segregating capital from operational expenditures. The PBO maintains that the government’s expansive definition of capital investments surpasses acceptable limits, as outlined in the international System of National Accounts. The watchdog’s analysis suggests that out of the projected $311 billion in capital spending from 2024-25 to 2029-30, only $217.3 billion qualifies as genuine capital expenditure. In light of the subjectivity in defining capital investments, the report recommends the establishment of an independent expert body to determine eligible federal spending categories.
Following the government’s decision to separate day-to-day and capital spending reporting, Prime Minister Mark Carney emphasized that this adjustment would enhance transparency regarding borrowing for operational purposes versus investments. The government broadly defines capital investments as any expense contributing to public or private sector capital formation, either directly on the government’s balance sheet or on entities like Indigenous communities or other government levels. However, the PBO argues that this definition exceeds international standards.
Regarding operational spending, the budget reiterates Carney’s pledge to balance government program and transfer expenditures within three years. However, the PBO report highlights that without the additional spending from the 2024 fall economic statement and the 2025 budget, operational spending could have reached a surplus as early as 2026-27. The measures introduced post the fall announcement are projected to keep the operating budget in deficit until 2028-29, extending beyond official budget forecasts.
Although the federal government anticipates a decline in the deficit-to-GDP ratio from 2.5% in 2025-26 to 1.5% by 2029-30, the PBO report casts doubt on this projection, estimating a mere 7.5% chance of consistent annual reductions in the ratio through 2029-30. Despite these concerns, Jacques’s report indicates a gradual decrease in Canada’s debt-to-GDP ratio over the next three decades, positioning the Liberal government with a sustainable fiscal stance.
Responding to the PBO’s findings, Finance Minister François-Philippe Champagne’s press secretary, John Fragos, emphasized that the budget’s measures aim to address Canada’s long-standing growth and productivity challenges. Fragos underscored the budget’s sustainable outlook, balancing ambition with prudent governance while noting the potential economic growth impacts from the budgetary measures.
Former Parliamentary Budget Officer Kevin Page graded the Liberal budget with a B for fiscal responsibility, affirming the sustainability of Canada’s fiscal structure despite increased debt and limited fiscal flexibility for unforeseen economic shocks. Jacques was appointed by the Liberal government on an interim basis in September for six months; however, a search for a permanent replacement with “tact and discretion” was recently announced.
During a speech in Calgary, Conservative Leader Pierre Poilievre criticized Prime Minister Mark Carney for allegedly misrepresenting day-to-day operational spending as investments, suggesting that the government is unlikely to achieve deficit targets, which may adversely affect Canadians. Poilievre asserted that the parliamentary budget officer’s report underscores the financial implications of Carney’s budget decisions, potentially leading to elevated living costs and higher future taxes for Canadians.
