Budget Watchdog Voices Concern About Ottawa’s Lack of Fiscal Anchors

The Parliamentary Budget Officer (PBO) says many members of his team are concerned by the federal government’s apparent absence of fiscal anchors to rein in spending.

“I don’t know that the government currently has fiscal anchors, which, of course, causes the people that I work with a considerable degree of concern at this point,” interim PBO Jason Jacques told the government operations committee on Sept. 16.

Jacques said the previous Liberal government under Prime Minister Justin Trudeau had the anchors of keeping Canada’s annual deficit at 1 percent of GDP, as well as maintaining a declining debt-to-GDP ratio.

“It’s unclear where those stand,” he told MPs during his testimony. “They haven’t been reiterated by the current government, to my knowledge.”

Then-Finance Minister Chrystia Freeland said in November 2023 that Canada’s deficit-to-GDP ratio would fall in the 2024–25 fiscal year, and that deficits would remain below 1 percent of GDP in 2026–27 and in the years after.

However, the government said in its Fall Economic Statement that debt-to-GDP ratio would rise two years in a row, but promised to meet a 42.1 percent debt-to-GDP ratio for the 2023–2024 fiscal year, as well as keep the deficit below $40.1 billion.

Ahead of the 2024 Fall Economic Statement, Freeland said the government would meet its 42.1 percent debt-to-GDP ratio for the fiscal year. But she did not answer whether the government would keep the deficit below $40.1 billion, saying she had been “careful and precise in my comments about the debt-to-GDP ratio,” which she said is “our fiscal anchor.”

Freeland resigned from cabinet the day she was set to deliver the Fall Economic Statement, saying in a letter released Dec. 16 that Trudeau had wanted to replace her with Mark Carney. In the letter, Freeland also criticized the Liberal government’s “costly political gimmicks,” which she did not define.

The Fall Economic Statement showed that the government’s deficit for the 2023–24 fiscal year had grown to $61.9 billion, overshooting the fiscal anchor by more than $20 billion. The statement said this was due to “significant unexpected expenses related to Indigenous contingent liabilities” and allowances for COVID-19 pandemic supports, costing $16.4 billion and $4.7 billion respectively. However, the government did keep its promise to maintain a declining debt-to-GDP ratio.

Carney promised during the last election that his government would run a “small deficit on capital spending that aligns with our fiscal capacity,” while also ensuring government debt-to-GDP would decline. Carney did not release a budget or economic plan in the spring of 2025 after becoming prime minister and forming a government. He instead promised to release a budget when Parliament resumes in the fall.

Former Parliamentary Budget Officer Yves Giroux recently projected this year’s federal deficit could fall between $60 billion and $70 billion. However, La Presse recently reported that a source said the deficit could exceed $100 billion.

When Jacques was asked about this potential figure during his testimony before the government operations committee, he said the last time these deficit numbers were seen was during the COVID-19 pandemic. Jacques said the PBO will release its Economic and Fiscal Baseline next week, which will detail deficit projections for the next five years.

“Potentially we are getting in $100 billion, potentially not,” he said. “I won’t say our numbers are close to that or not. You’ll have to wait until next Thursday.”