Canada’s interim Parliamentary Budget Officer has issued a scathing review regarding the Liberal government’s financial situation, suggesting that it’s questionable whether the government can live up to its plans concerning deficits. Jason Jacques has issued a statement, pointing out that there’s only a small chance, under 10 percent, that Canada can keep its deficits under control until 2029-30. This has come at a time when Canada’s MPs are set to vote on its federal budget.
The accounts of firms are under rigorous examination by the Budget watchdog
The Parliamentary Budget Office has released what amounts to its strongest criticism to date regarding financial reporting by the government, focusing primarily on distinctions between capital and operating expenses. Jacques writes, “The government’s concept of capital expenditure is ‘overly expansive’ and drives up perceived productive expenditure by camouflaging operating expenses that are, in truth, deficits.” The Parliamentary Budget Office finds “only $217.3 billion of $311 billion of government expenditure over 2024-25 and 2029-30 meets its criteria as capital expenditure.”
This is not merely an accounting issue, as it has to do with financial transparency and accountability. The financial watchdog argues that Finance Canada’s definition is over and above international standards set by the System of National Accounts, as countries measure economic activity. The PBO recommends creating an independent authority with an expert deciding what federal expenses can be defined as investments into capital.
“The PBO contends that ‘the government’s definition of capital investments is far too broad,” states Friday’s report, pointing out disagreements over fiscal transparency.
Projections of deficits suggest that we face a problematic financial future
The Parliamentary Budget Office further lowers its forecast of federal deficits to average $64.3 billion each year from 2025-26 to 2029-30, roughly doubling its earlier estimate last fall. This new estimate takes into account new program expenditures and relaxed fiscal rules, which reduce what could be small surpluses in those years. The government has promised that its deficit-to-GDP ratio will decrease from 2.5% to 1.5% by 2029-30, although the PBO sees only a 7.5% probability of consecutive cuts.
Without the new expenditure allocations made recently in the economic statement and then in the 2025 Budget, operational expenditure would potentially yield a surplus beginning as early as 2026-27. Nevertheless, with these new spends, the operational budget is foreseen to remain in deficit until 2028-29, thereby spreading red ink by one more year than what was initially foreseen by the government. Such trends presuppose an optimistic bias by the government in its forecasting.
Long-term sustainability remains achievable despite current challenges
Despite criticism over his views regarding accounting and deficit trends, Jacques does recognize that Canada’s ratio of debt to GDP will decrease over the next thirty years, making its fiscal sustainability “modest and sustainable.” This opinion appears inconsistent with his earlier view in September that governments’ expenditure was “unsustainable” and “shocking.”
The leader of the Conservative Party, Pierre Poilievre, has capitalized on the findings of this PBO report to criticize the fiscal practice of Prime Minister Mark Carney, saying, “The government is cooking its books by classifying operating expenses as investments.” The office of Finance Minister François-Philippe Champagne has supported the format of this budget, suggesting that economic growth, which will be created by this budget, has not been taken into account in the findings of the PBO.
The parliamentary budget watchdog in Canada has pointed out that there are grave discrepancies in government financial management, although it is admitted that financial sustainability is still feasible in the long run. The impasse regarding financial reporting and deficits indicates conflicts between political demands and financial realities. It is probable that, as members of Parliament get ready to vote on the budget, Canada’s financial integrity and its capacity to honor financial commitments will shape political and financial market attitudes towards Canada’s financial instruments.