Canada's federal deficit more than doubled in the last fiscal year, according to a new estimate from the parliamentary budget officer. The deficit reached $62.8 billion, up from $30.8 billion the previous year, driven by lower revenues and higher spending.
Key Findings from the Budget Watchdog
The parliamentary budget officer (PBO) released its latest fiscal snapshot on Thursday, showing that the deficit for the 2025-26 fiscal year was significantly larger than anticipated. The increase is attributed to a slowdown in economic growth, which reduced tax revenues, and continued government spending on programs and services.
The PBO noted that the deficit-to-GDP ratio rose to 2.1%, up from 1.0% in the previous year. The federal debt is now estimated at $1.3 trillion, with the debt-to-GDP ratio increasing to 42.3%.
Economic Context
Canada's economy has faced headwinds in recent months, including high interest rates, inflation, and a cooling housing market. The Bank of Canada has held its key interest rate at 4.5% since March, aiming to bring inflation back to its 2% target. However, the economy contracted in the first quarter of 2026, leading some economists to declare a technical recession.
The PBO's report comes as the federal government prepares for the next budget, expected in the fall. Finance Minister Chrystia Freeland has emphasized the need for fiscal responsibility while continuing to invest in healthcare, housing, and climate action.
Reactions and Implications
Opposition parties criticized the government's fiscal management. Conservative Leader Pierre Poilievre called the deficit "out of control" and demanded a plan to balance the budget. NDP Leader Jagmeet Singh argued that the government should focus on supporting Canadians through the economic downturn rather than austerity.
Economists warn that the rising deficit could limit the government's ability to respond to future crises. However, some argue that deficit spending is necessary during an economic slowdown to support growth and protect vulnerable populations.
The PBO estimates that the deficit will decline to $45.2 billion in the current fiscal year, assuming no new spending measures. But that projection depends on economic recovery and stable interest rates.
