Canada's 2026 budget faces scrutiny over debt sustainability and spending plans
Analysts question whether the Liberal government's upcoming budget will keep federal debt on a sustainable path amid new spending commitments and an energy revenue boost.
Ottawa is preparing to present its 2026 budget on Thursday, the second budget tabled under Prime Minister Mark Carney. The plan, titled “Maitre Chez Nous,” signals a shift toward an aggressive infrastructure agenda while aiming to reduce the deficit as a share of GDP and balance the operating budget by 2027-28.
Parliamentary Budget Officer Annette Ryan said her office remains skeptical that the government will meet its fiscal anchors, projecting the deficit-to-GDP ratio to rise midway through the forecast horizon. The PBO also expects the operating budget balance to be achieved a year later than the government claims.
"I think whether governments are borrowing to spend on operating expenses or capital investments does make a big difference," said Randall Bartlett, deputy chief economist at Desjardins. "However, the federal government’s definition of capital versus operating is unclear, erroneous and, quite frankly, self-interested."
Bartlett noted that the government's new spending commitments, including the Pacific Link oil pipeline and a "productivity mega-deduction" tax incentive, add roughly $50 billion over the next decade. He warned that the current boost to revenues from higher oil prices and U.S. counter-tariffs is unlikely to be permanent.
Finance Minister Francois-Philippe Champagne defended the approach, stating that deeper deficits are needed to support workers in sectors affected by tariffs and that Canada’s strong fiscal position within the G7 provides the capacity to weather challenges.
Policy analyst Colin Busby of the C.D. Howe Institute cautioned that Canada could face fiscal strain in the future if current trends continue, urging the government to seek additional savings beyond the $60 billion target announced in the previous budget.
The PBO’s latest outlook projects a deficit of $63.3 billion for the current year, slightly lower than the government’s estimate of $65.3 billion, and anticipates fluctuations that could bring the deficit to $67.8 billion by 2030-31. Analysts say the government’s fiscal flexibility is limited after recent spending commitments, raising concerns about its ability to respond to future shocks.