Budget 2026: balancing infrastructure ambitions with fiscal realities

Analysts are closely examining the budget’s plan for managing federal debt, aiming to ensure sustainable economic growth and expanded trade opportunities. Parliamentary Budget Officer Annette Ryan recently expressed concerns that Ottawa may not meet its stated fiscal targets. The government has committed to reducing the deficit as a percentage of the economy and balancing the operating budget by 2027-28, but the PBO anticipates deficits may persist beyond that timeframe.

Deputy Chief Economist Randall Bartlett of Desjardins highlights the government’s sometimes opaque approach to defining and classifying spending, creating challenges for fiscal oversight. He notes that the government’s definitions of capital versus operating expenses are unclear and potentially self-serving. Since April, the government has added roughly $50 billion in planned spending over the coming decade.

Significant new commitments include the Pacific Link oil pipeline to British Columbia and a “productivity mega-deduction” tax incentive, alongside ongoing defense spending to meet NATO obligations. However, stronger-than-expected nominal GDP growth and counter-tariffs on U.S. imports are providing a boost to federal revenue, particularly due to elevated global oil prices linked to the conflict in the Middle East.

Bartlett anticipates lower deficits in the near term due to these energy revenues, cautioning that this windfall is not sustainable. He warns the government must demonstrate fiscal prudence when these revenues decline. The government projected a deficit of $65.3 billion for 2026-27, decreasing to $53.2 billion by 2030-31, while the PBO’s forecast estimates a deficit of $63.3 billion this year, rising to $67.8 billion by 2030-31. The PBO estimates that without recent spending commitments, deficits would be $4.6 billion lower annually.

Colin Busby of the C.D. Howe Institute urges Ottawa to prioritize finding savings within the budget. The Liberals previously pledged $60 billion in savings over five years, a target deemed “timid” by Busby. Finance Minister François-Philippe Champagne often compares Canada’s fiscal position to other G7 nations to justify borrowing and infrastructure projects. While Canada’s situation is currently more stable than countries like the United Kingdom or France, Busby warns against complacency.

Although Canada’s sovereign credit rating isn’t currently at risk, Bartlett cautions that further spending could weaken Ottawa’s fiscal position, limiting its ability to respond to future economic shocks. Desjardins projects the debt-to-GDP ratio will rise starting in 2027-28 before declining over the longer term.