The federal government is on pace to post a $92-billion deficit this fiscal year — nearly double what was projected just four months ago, according to a new report from the C.D. Howe Institute. If accurate, it would mark the second-largest deficit in Canadian history, trailing only the $327.7-billion shortfall of 2020-21 during the pandemic, according to National Post.
“The picture is definitely not pretty,” said Alexandre Laurin, C.D. Howe’s vice-president, who co-authored the report with William Robson and Don Drummond.
The think tank now forecasts annual deficits of over $77 billion for the next four years, far higher than the government’s projections in its most recent budget — which is now more than a year old. The report criticizes the government’s delay in tabling a new budget, saying, “Delaying a budget until the fiscal year is more than half over is never good, but Canada’s current high-spending trajectory makes this delay especially bad.”
National Post writes C.D. Howe attributes the worsening outlook to rising defence spending, Trump-era tariffs, tax cuts, and the scrapped digital services tax. It also questions whether promised revenue boosts from fines, penalties, and savings will materialize.
The report notes Ottawa is making major fiscal commitments without disclosing key figures, including the expected tax intake, spending levels, and future interest payments. “Ottawa is making costly commitments… without showing key numbers to the public,” it warns.
“It is widely accepted that Canada’s economy is at a critical crossroads,” the authors write. “So are Canada’s finances – beyond the economic drag of high deficits and rising debt, it is unfair to pass these burdens on to the current young and future generations.”
In contrast, the Parliamentary Budget Officer had projected in March that the federal deficit would shrink to $50.1 billion this year, with continued improvements in future years — assuming no major new spending or tax cuts.
C.D. Howe recommends the government cut operating costs, abandon some costly platform promises, consider increasing less harmful taxes like the GST, and reduce federal transfers. It also rejects Ottawa’s plan to separate operating and capital budgets: “The large deficits projected in this update cannot be downplayed or disguised by dividing the budget into two new categories.”
The report concludes that greater transparency is essential: “The government must improve its accountability by sharing its revenue and spending figures with taxpayers.”
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