Prime Minister Mark Carney's government has narrowly passed its first budget in the House of Commons, projecting a substantial $78.3-billion deficit for the current fiscal year. This figure, which is almost double what the previous administration had planned, marks a significant departure from recent Canadian fiscal history and raises questions about the nation's economic trajectory.
A Deficit in Historical Context
To understand the scale of this year's shortfall, it's essential to compare it to recent history. The Carney government's $78.3-billion deficit is nearly double the $42.2-billion deficit that Justin Trudeau's government had planned for this year. It also far exceeds the deficits run by the Trudeau government over the past three years, which ranged between $35 billion and $62 billion.
When excluding the extraordinary pandemic years of 2020/21 and 2021/22, Carney's current deficit is larger than any deficit run during Trudeau's time in office, despite Trudeau holding the record as the highest-spending prime minister in Canadian history on a per-person basis.
Comparisons to Past Economic Crises
The current deficit situation bears remarkable similarity to periods of significant economic stress in Canada's past. To find a non-pandemic federal deficit approaching Carney's, one must look back to 2009/10 when Stephen Harper's government responded to the global recession with substantial stimulus spending, resulting in a $56.4-billion deficit.
What makes Carney's deficit particularly notable is that it comes at a time when Canada is not experiencing a recession comparable to the 2008 global financial crisis. According to analysis, the current deficit largely stems from discretionary spending decisions rather than being primarily a response to external economic pressures such as U.S. President Donald Trump's tariffs.
The Long-Term Fiscal Trajectory
The path forward for Carney's deficit differs significantly from historical patterns of fiscal management. After the 2009/10 deficit, the Harper government managed to reduce the shortfall by half within two years and made rapid progress toward achieving a balanced budget.
In contrast, the Carney government's budget anticipates only a 19% reduction over the next two years and a 28% reduction over four years. By 2029/30, the deficit is projected to remain at roughly 1.5% of Canada's GDP—comparable to the deficits Canada ran in the years immediately following the 2008 global financial crisis.
Looking further back, federal deficits in the early and mid-1990s were consistently larger as a share of GDP than Carney's current deficit. That period saw large persistent deficits and mounting debt that pushed Canada toward a fiscal crisis, ultimately requiring the government of Jean Chrétien to implement substantial spending reductions to repair the country's finances and lay the groundwork for stronger economic growth.
The Carney government has defended its fiscal approach by claiming it will balance the "operating budget." However, this categorization splits spending into "operating spending" and "capital investment." Even if the government balances its operating budget in 2028/29, it will still incur a projected deficit of $57.9 billion after accounting for capital investment.
This ongoing borrowing will have significant consequences for Canadian taxpayers. Debt interest payments are projected to reach $76.1 billion by 2029/30—more than the government plans to spend on health-care transfers to the provinces that year.
The Carney government's first budget represents a substantial shift in Canadian fiscal policy, with a deficit that is not planned as a temporary response to economic turmoil but as an ongoing feature of federal spending. The historical comparisons underscore the unusual nature of this approach and its potential long-term implications for Canada's economic future.
