Canada’s budget watchdog questions Liberal accounting methods but says the country’s long-term fiscal outlook remains sustainable despite rising deficits.
PBO Challenges Ottawa’s Accounting as Budget Vote Nears
Scrutiny of Government’s Fiscal Claims
Days before MPs vote on the Liberal government’s latest budget, interim Parliamentary Budget Officer (PBO) Jason Jacques has raised concerns about the credibility of Ottawa’s deficit targets. His new report, released Friday, warns there is less than a 10% chance the government will stay within the deficit-to-GDP targets it has set.
Revised View on Long-Term Fiscal Health
The assessment marks a notable shift from Jacques’s earlier warnings last September, when he called federal spending “unsustainable” and “shocking.” The latest analysis now concludes that—even under financial strain—Canada’s fiscal outlook remains sustainable over the long term according to the PBO’s own framework.
Concerns Over Redefined Capital Spending
The report directs its strongest criticism at Finance Canada’s decision to separate capital and operational spending in its deficit reporting. According to the PBO, the government’s definition of capital investments is “overly expansive.”
While Ottawa lists $311 billion in capital spending between 2024-25 and 2029-30, the PBO finds that only $217.3 billion fits the traditional criteria. The watchdog argues that determining what qualifies as capital investment is too subjective under the government’s current approach.
Call for Independent Oversight
Because of the ambiguity, the report urges the federal government to create an independent expert body responsible for defining which federal measures genuinely qualify as capital investments. The PBO notes that Canada’s current interpretation exceeds international standards outlined in the System of National Accounts.
Operational Spending Outlook
Prime Minister Mark Carney has said the revised reporting is meant to clarify for Canadians the difference between borrowing to operate government services and borrowing to invest in long-term infrastructure. The budget also reiterates the commitment to balance day-to-day operational spending within three years.
However, according to the PBO, operational spending could have reached a surplus by 2026-27 had the government not introduced additional measures in the 2024 Fall Economic Statement and the 2025 budget. The new spending now keeps operational finances in deficit until 2028-29, a year later than the government projects.
Deficit Trajectory in Doubt
While the federal government predicts the deficit-to-GDP ratio will peak at 2.5% in 2025-26 and fall to 1.5% by 2029-30, the PBO says there is only a 7.5% chance the deficit ratio will decline each year over that period.
“This suggests it is unlikely that the government’s declining deficit-to-GDP fiscal anchor will be respected,” the report states.
Future Fiscal Stability and Leadership Transition
Despite the short-term risks, the PBO estimates that Canada’s debt burden as a share of GDP will decline over the next 30 years, supporting the view that the government’s long-term fiscal position is sustainable.
Jacques was appointed interim PBO in September for a six-month term. Earlier this week, the government announced it is now searching for a permanent replacement with “tact and discretion,” signaling a forthcoming shift in fiscal oversight leadership.
