B.C. Minister of Finance Brenda Bailey tables the provincial budget as Premier David Eby, right, looks on in the assembly at legislature in Victoria, on Feb. 17.CHAD HIPOLITO/The Canadian Press
Don Drummond is a fellow-in-residence at the C.D. Howe Institute and Stauffer-Dunning Fellow at Queen’s University.
William B.P. Robson is president emeritus and a fellow-in-residence at the C.D. Howe Institute.
Alexandre Laurin is the vice-president and director of research at the C.D. Howe Institute.
Many Canadians may still have an image of Canada as a country aware that governments cannot spend and borrow without limit. They should not. With the economy operating near capacity and growth in productive capacity weak, governments continue to run deficits and project rising debt ratios, undermining growth and living standards rather than supporting them.
The Globe and Mail columnist Gary Mason recently wrote about the “death of fiscal sanity in Canada”. He pointed to the federal government’s November, 2025, budget projecting yet more deficits, and 2026 budgets in British Columbia and Alberta, that forecast relentless borrowing. If he were writing today, he could say the same about budgets in New Brunswick, Ontario, Saskatchewan and Prince Edward Island. Every province, like the federal government, is running a deficit. Every province, like the federal government, projects net debt rising faster than GDP.
Combining projections from the 2026 provincial budgets with those of the 2025 federal budget points to a steady rise in the national net debt ratio, from about 66 per cent of GDP just before the pandemic to roughly 82 per cent by 2028–29, underscoring the risk of drifting back toward the near-100 per cent levels seen in the mid-1990s.
After Canadians received an awakening to fiscal reality in the 1990s, when years of stagnating living standards and rising interest payments prompted a fiscal reckoning, Canadians have collectively slipped back into a period of fiscal fantasy. The federal government’s upcoming spring economic statement would be a good occasion for a return to sanity.
Gary Mason: The death of fiscal sanity in Canada
Canada has experienced periods of fiscal fantasy before. In the 1970s and 1980s, policymakers refused to recognize that the economy’s productive potential had slowed after the 1960s boom. They argued that slow growth required deficit-financed spending, and that renewed growth would shrink the resulting debt relative to the economy over time. By the mid-1990s, however, reality – in the form of relentless pressure of interest payments on annual budgets and dwindling appetite for Canadian sovereign debt from potential lenders – forced cuts to spending and borrowing. Debt ratios and interest burdens fell, setting the stage for tax reforms into the 2000s.
Notwithstanding important differences today – notably President Trump’s trade aggression – much else is the same. Growth in the economy and government revenues is feeble – in part because high taxes and excessive borrowing are discouraging work and investment. Spending has roared ahead – far ahead of population growth and inflation, and far ahead of prior budget projections. And budget projections understate important risks. Instead of taking comfort from fiscal overextension elsewhere, Canadians should ask what will happen if concerns about defaults and inflation push borrowing costs higher. Instead of assuming that future Canadians can and should willingly pay the bill for today’s programs, Canadians should worry about other burdens they will face, such as geopolitical conflict, environmental stresses and the relentless pressure of an aging population and health-care spending on government budgets.
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The federal government’s upcoming spring economic update must prefigure a change to fiscal realism. It must not feature more boondoggles like the juiced up GST tax credit or its recent suspension of the fuel tax – another debt-financed handout that will do nothing for growth.
Instead, the spring update needs to present a realistic baseline for economic and fiscal prospects. It should set a clear track toward budget balance over a politically relevant period – say, four years – with credible measures to achieve it. It should establish spending targets based on mid-to-late 2010s levels, before the spending explosion of the past decade, supported by rigorous value-for-money benchmarks. And it should ensure that lower spending and borrowing lay the ground for tax reforms that would encourage work and private-sector investment.
All senior governments bear responsibility for Canada’s latest slide into fiscal fantasy. But the federal government needs to lead the correction. It needs to build public support for lower spending, balancing budgets and tax reform. Canadians need to emerge from their fiscal fantasy and face reality. The federal government’s spring update is a good time to start.