During the election last April, in an attempt to distance itself from former prime minister Justin Trudeau’s government, the Carney campaign promised a “very different approach” to federal finances to improve Canada’s economy. Based on the experiences of past federal governments, this approach should include spending restraint, balanced budgets and debt reduction.
Unfortunately for Canadians, the Carney government is doubling down on the Trudeau government’s failed approach.
Trudeau’s legacy as prime minister is one of historically poor fiscal management. During his tenure, the federal government recorded the highest spending levels on record, which resulted in nine consecutive deficits and the highest levels of debt accumulation on record (after accounting for population changes and inflation).
Moreover, compared to the Stephen Harper and Jean Chrétien governments, the Trudeau government presided over the weakest economic performance across a variety of measures, including growth in per-person gross domestic product or GDP (a broad measure of individual living standards), private-sector job creation and per-worker business investment (which helps workers become more productive and earn higher incomes). ...
Based on this evidence, to deliver on its promise of a strong economy, the Carney government should reject the fiscal policies of Trudeau and instead emulate Chrétien’s approach. But as noted in our new study, that’s not happening.
For example, according to the Carney government’s first budget released in November, from fiscal years 2025-2026 to 2029-2030, the Carney government plans to spend $67.6 billion more than the Trudeau government planned for the same five-year period in its last fiscal update.
Combined with slower projected revenue growth, the Carney government’s higher planned spending will produce combined deficits of $321.7 billion over the five years – more than double what the Trudeau government had planned ($154.5 billion).
Consequently, the Carney government projects total federal debt will reach $2.9 trillion by 2029-2030 compared to $2.6 trillion under the Trudeau plan. Clearly, the Carney government plans to spend more, run larger deficits, and accumulate more debt than even the Trudeau government had planned. ...
For example, the government recently introduced a new “affordability” package centred around a five-year, 25% increase to the quarterly federal GST payment for eligible Canadians, along with a one-time additional GST payment equal to 50% of the normal payment. This poorly targeted package, which will send cash to many individuals who don’t need it, follows the same “affordability” strategy as the Trudeau government. And it comes with an estimated price tag of $12.4 billion.
**
— Sheldon Yakiwchuk (@YakkStack) April 3, 2026
**
As provincial budget season winds down nationwide, we are left with the fiscal remains of the day as estimates of budget deficits assault our senses. With the 2025-26 fiscal year wrapping up, every provincial government is reporting or expected to report a budget deficit.
For example, Ontario’s deficit came in below what was projected at only $12.3 billion, but next year’s shortfall is now larger than initially projected at $13.8 billion. As numbers go, being a few billion dollars off from year to year, given the turbulent economic times, is to be expected. After all, borrowing from C.D. Howe, in the end, what is a billion dollars these days, anyway?
Yet, deficits are only part of the story when it comes to provincial and now even federal finances because of the practice of what is termed accrual accounting with capital budgeting. Essentially, what this involves is the separation of operating and capital budgets, where the operating budget focuses on revenues minus expenses, and capital expenditures are recorded separately, with the net debt capturing the full impact of the increase in borrowing.
To put the numbers in perspective, for 2025-26, the federal government incurred a deficit of $78.3 billion but added $86.8 billion to its net debt. In the same fiscal year, the provinces collectively incurred a combined deficit of $42.1 billion but added a total of $81.4 billion to their total net debt.
While long a private sector approach, Ontario and British Columbia began the practice in the 1990s, and other provinces followed suit in the 2000s. The federal government indicated expanding its move to this type of capital budgeting in Budget 2025. ...
More to the point, the deficit includes debt charges and amortization costs of capital projects, but not the full borrowing requirements, which are shifted to the capital budget and appear in the net debt.
As a result, reported deficits are only partial deficits, with a full reporting of the amount borrowed in a given fiscal year being the sum of the operating deficit plus the additional increase in the net debt over and above the amount of the operating deficit. What this does over the long term is place an emphasis on the operating deficit when it comes to budget season and media optics, but downplays the true amount of borrowing as reported in the increase in net debt.
This is usually, conveniently, buried at the back of the budget. This creates an incentive for governments to spend and borrow more than they otherwise might have if the full size of the deficit and borrowing were more upfront.
No comments:
Post a Comment