Deficit targets in doubt as Ottawa’s budget watchdog urges independent oversight on capital spending
Canada’s interim Parliamentary Budget Officer (PBO) Jason Jacques delivered a pointed critique of the federal government’s latest budget, warning that Ottawa’s chances of meeting its deficit targets are slim, while also acknowledging that the country’s fiscal path remains sustainable over the long haul.
In a report released just days before MPs are set to vote on the Liberal budget, Jacques said there is less than a 10% chance the government will keep its deficit-to-GDP ratio on a downward track through 2029-30.
The PBO’s sharpest criticism focused on how Finance Canada has changed its reporting of deficit financing, separating capital from operational spending.
“The PBO maintains its view that the government’s definition of capital investments is overly expansive,” the report said.
While the government projects $311 billion in capital spending between 2024-25 and 2029-30, the PBO’s analysis puts the figure at $217.3 billion. That's a difference of nearly $94 billion.
Jacques called for an independent expert body to decide what qualifies as capital investment, arguing that the current approach introduces too much subjectivity.
Capital versus operational spending
Prime Minister Mark Carney has pitched Budget 2025 as a generational shift, aiming to pivot Canada’s economy away from United States reliance and toward long-term investments.
The government defined capital investments broadly, including not just infrastructure and housing but also tax credits and subsidies.
The PBO, however, flagged this as exceeding international standards and said it muddles the distinction between day-to-day and long-term spending.
The report also found that new operating spending—$87 billion over five years—along with $65 billion in contingent reserves, is driving deeper deficits.
Without measures announced since last fall, the government could have achieved an operating surplus by 2026-27.
Now, the PBO expects balance only by 2028-29, a year later than the government’s own fiscal anchors.
Deficit targets and fiscal sustainability
Despite these concerns, Jacques’s tone marked a shift from his earlier warnings about “unsustainable” and “shocking” spending.
Using the PBO’s own framework, he said, “Canada’s debt as a share of GDP will decline over the next 30 years, giving the Liberal government a limited but sustainable fiscal position.”
Finance minister François-Philippe Champagne’s office pushed back, with press secretary John Fragos stating, “The report in question takes a narrow outlook of Canada’s fiscal and economic policy trajectory, looking at Canada’s budget in isolation—absent longer-term considerations and knock-on-effects.”
Fragos added that Budget 2025 “balances ambition with responsible governance.”
Kevin Page, Canada’s first PBO, recently gave the budget a grade of B for fiscal responsibility, noting that while the country’s fiscal structure is sustainable, there is less room to absorb shocks like another pandemic or financial crisis.
While Ottawa’s operating spending continues to drive deficits beyond stated targets, the PBO’s analysis suggests the federal government’s long-term fiscal sustainability is intact, provided it tightens its approach to capital accounting and maintains discipline on new spending.
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