As Members of Parliament prepare to vote on the Liberal budget, interim Parliamentary Budget Officer (PBO) Jason Jacques has expressed doubts about the government’s financial reporting, indicating that the likelihood of adhering to its deficit targets is below 10 percent.
In contrast to his earlier remarks in September, where he described Canada’s expenditures as “unsustainable” and “shocking,” Jacques now claims that, based on the PBO’s framework, the government’s fiscal situation, although constrained, is sustainable in the long run.
The report provides stern criticism regarding the changes Finance Canada made to its deficit financing reports, particularly the decision to distinguish between capital and operational expenditures.
According to Friday’s report, “the PBO continues to believe that the government’s definition of capital investments is excessively broad.”
While the government plans $311 billion in capital expenditures from 2024-25 to 2029-30, the PBO concludes that only $217.3 billion should be recognized as true capital spending.
The report suggests that due to the subjective nature of defining capital investments, the government ought to “create an independent expert entity to assess which federal spending categories qualify as capital investments.”
When Carney announced the plan to differentiate between daily operational and capital spending, the Prime Minister stated that this would help Canadians understand the distinctions between borrowing for operational costs and borrowing for investments.
The government defines capital investments as “any government expense or tax expenditure that contributes to capital formation in the public or private sectors, whether recorded on the government’s balance sheet or that of a private entity, Indigenous community, or another government level.”
The PBO asserts that this definition exceeds the parameters set by the System of National Accounts, which is an international standard for calculating and accounting for national economic activities.
Interim Parliamentary Budget Officer Jason Jacques criticized the government’s financial practices, indicating a low likelihood of meeting deficit targets. CBC’s Mark Carcasole elaborates on this.
Operational spending
The budget reiterated Carney’s commitment to balance the government’s everyday spending for programs and transfers within three years.
However, the PBO report indicated that without the expenditures announced in the autumn 2024 economic statement and the 2025 budget, operational spending could have achieved a surplus as early as 2026-27.
The measures introduced since last fall, according to the report, will maintain the operational budget in deficit until 2028-29, which is a year longer than the budget anticipates.
The federal government forecasts that its deficit-to-GDP ratio will rise to 2.5 percent in 2025-26 before reducing to 1.5 percent by 2029-30. However, the PBO asserts there is only a 7.5 percent chance that this ratio will consistently decline through 2029-30.
“This implies that it is improbable the government will adhere to its declining deficit-to-GDP fiscal anchor,” the report stated.
Nevertheless, according to the PBO’s estimates, Jacques’s report noted that Canada’s debt as a proportion of GDP is projected to decrease over the next three decades, providing the Liberal government with a manageable yet sustainable fiscal standing.
John Fragos, press secretary for Finance Minister François-Philippe Champagne, stated to CBC News that while the minister’s office values the PBO’s analysis, it is essential to recognize that the findings do not reflect the anticipated economic growth from the budget measures that may offer additional fiscal flexibility in the future.
“Budget 2025 tackles the broader challenges of growth and productivity that Canada has faced for years,” Fragos mentioned in an email. “The budget adopts a responsible, long-term perspective that merges ambition with sound governance.”
Conservative Leader Pierre Poilievre responded to the parliamentary budget watchdog’s report on Friday, labeling the Liberal spending strategy as a ‘costly credit card budget.’ The report indicated a low probability of the government achieving its deficit targets. The House is set to vote on the budget in a crucial decision on Monday.
Kevin Page, the inaugural parliamentary budget officer, assigned a B grade for fiscal responsibility to the Liberal budget, asserting that Canada’s “fiscal structure” remains sustainable despite a higher debt load and limited fiscal capacity to handle potential financial crises, such as another pandemic or a repetition of the 2008 financial downturn.
The Liberal administration appointed Jacques for a six-month term in early September, but this week it was announced they are seeking an individual with “tact and discretion” for a permanent position.
In a statement made in Calgary, Conservative Leader Pierre Poilievre accused Prime Minister Mark Carney of “manipulating financial records by misclassifying everyday operational costs as investments” and asserted that the Liberal government is unlikely to fulfill its deficit goals, which could adversely affect all Canadians.
“The report from today’s parliamentary budget officer shows that Mark Carney’s expensive credit card budget will lead to increased grocery and housing costs for Canadians today and elevated taxes for them in the future,” Poilievre stated.
