PBO sees deficits above $63B for five years
Parliamentary Budget Officer Annette Ryan’s latest economic and fiscal outlook, released Oct. 20, projects a federal deficit of $63.3 billion in 2026-27, rising to $70.2 billion the following year before declining slightly to $67.8 billion by 2030-31. / PBO PHOTO
The federal government is facing mounting fiscal pressures, with deficits projected to remain above $63 billion annually for the next five years, according to a new report from the Parliamentary Budget Office.
The PBO's latest economic and fiscal outlook, released Oct. 20, projects a federal deficit of $63.3 billion in 2026-27, rising to $70.2 billion the following year before declining slightly to $67.8 billion by 2030-31.
The findings come just over two weeks before the government tables its budget on Nov. 5, a date Finance Minister François-Philippe Champagne announced in Question Period on Tuesday.
"Canada faces a more challenging economic and fiscal outlook than we projected in June," Parliamentary Budget Officer Annette Ryan said.
The PBO now expects Canada's economy to grow by just 0.9% in 2026 and 1.5% in 2027, down from its June projections of 1.1% and 1.6%, largely reflecting U.S. tariffs and Canadian retaliatory measures, which could reduce Canada's real gross domestic product by about 1.4% over the medium term if they remain in place.
Higher oil and commodity prices are expected to boost federal revenues, creating $37.4 billion in additional fiscal room over five years. But new tax and spending measures announced since June are expected to cost $52.6 billion, leaving the projected 2030-31 deficit $9.5 billion higher than forecast in June.
The report also questions whether Ottawa can meet its two fiscal anchors: balancing day-to-day operating spending with revenues by 2028-29 and maintaining a declining deficit-to-GDP ratio. The PBO expects an operating surplus of $6.2 billion in 2028-29 but projects the government will fail to meet its commitment to steadily reduce the deficit relative to the size of the economy.
"A balanced operating budget anchor should not be interpreted as a balanced fiscal position," Ryan said. "By design, it excludes debt-financed capital spending, meaning borrowing and debt can continue to grow while the target is being achieved."
More than 80% of the $52.6 billion in recent measures is capital spending, which the target excludes. The federal debt-to-GDP ratio is projected to rise from 40.8% to 42.6%, with federal debt per person reaching $39,191 by 2030-31. The report notes that existing anchors have imposed limited discipline, setting up a significant test for the budget.
Meanwhile, Canada’s annual inflation rate rose to 3.1% in September, driven largely by 27.8% year-over-year jump in gasoline prices amid the ongoing Middle East conflict, Statistics Canada reported Monday. Grocery inflation slowed to 1.7%, suggesting price pressures remain concentrated in energy. The figures leave the Bank of Canada in a difficult position ahead of its Oct. 28 interest rate decision, say economists.
CIBC chief economist Avery Shenfeld told CBC the central bank could consider a hike following Governor Tiff Macklem’s Oct. 17 remarks. "Our view is that the Bank of Canada has lots of reasons to take a wait-and-see stance, given that inflation hasn't spread beyond energy. But the governor's remarks over the weekend did seem to raise the odds that he's going to go ahead with the rate hike this month," Shenfeld said.
