The parliamentary budget officer announced that the upcoming fall budget is anticipated to reveal a significant rise in Ottawa’s deficit, posing a threat to the government’s established fiscal targets. According to the latest projections by Ottawa’s fiscal watchdog, Jason Jacques, the federal government is predicted to record a yearly deficit of $68.5 billion this year, up from $51.7 billion in the previous year.
In a recent report, Jacques highlighted that the federal debt-to-GDP ratio is no longer projected to decline in the medium term, a critical fiscal benchmark for the government in the past. The updated fiscal and economic outlooks released by the office provide parliamentarians with a foundational assessment of the federal financial status preceding the Liberals’ fall budget presentation on November 4.
The report does not incorporate the plans to gradually increase defense spending to meet the revised NATO standard of five percent of GDP by 2035 or the announced intentions by Ottawa to reduce public service expenditure over the next three years. However, it does factor in approximately $115.1 billion in net new spending over five years announced by the government since the last fiscal update in December.
The weakened economy due to Canada’s trade tensions with the United States is impacting Ottawa’s tax revenue and contributing to higher deficits as the Liberals escalate capital spending. The PBO forecasts a real GDP growth of 1.2 percent in 2025 and 1.3 percent in 2026, down from the previous outlook of 1.7 percent and 1.5 percent, respectively, in March.
The nominal GDP, indicative of the federal government’s tax base, is expected to average $12.9 billion lower from 2025 to 2029 due to the enduring impact of tariffs. The PBO projects that with decreased revenues and heightened spending, budget deficits will be on average $26.6 billion higher annually through to 2029-30 compared to the previous March outlook.
The PBO anticipates a slight decline in deficits but expects them to hover around $60 billion annually in the foreseeable future. Finance Minister François-Philippe Champagne attributed the increased deficit to global trade disruptions and emphasized the necessity for government support to workers and economic transformation for future growth.
Champagne asserted that Canada maintains a robust fiscal position among its G7 peers and defended the requirement for significant investments to address the current economic challenges. While the parliamentary budget officer raised concerns about the government’s fiscal anchors, Prime Minister Mark Carney maintains that the federal government remains committed to these benchmarks.
Champagne reiterated the Liberals’ commitment to maintaining a declining deficit-to-GDP ratio and balancing the operating budget within three years as part of the government’s fiscal anchors. The PBO’s report indicates that the deficit as a share of GDP is projected to decrease through 2029-30 after an expansion this fiscal year.
The PBO’s outlook for deficit-to-GDP generally surpasses the spring Liberal platform projections, which anticipated a lower ratio for this year. The Trudeau government had previously relied on a decreasing debt-to-GDP ratio and a deficit cap of one percent of GDP as fiscal benchmarks. The PBO warns that the total debt as a proportion of GDP is no longer declining and is expected to rise to 43 percent over the medium term.
Jason Jacques assumed the role of parliamentary budget officer on an interim basis for six months before the fall session of the House of Commons commenced. A permanent appointment requires approval by the House, with the Conservative Party advocating for Jacques to retain the position.