Interim PBO Jason Jacques prepares to appear before a Standing Committee in Ottawa in September. Mr. Jacques said Friday that Ottawa's new fiscal anchors are unlikely to hold.Justin Tang/The Canadian Press
The interim Parliamentary Budget Officer released a report Friday that includes strong criticism of the Liberal government’s 2025 budget, saying it takes an overly broad definition of capital spending and includes fiscal targets that are unlikely to be met.
One of the key elements of the Nov. 4 budget was a new financial presentation that divides all spending into either operational or capital spending.
The government said this illustrates how it is delivering on Prime Minister Mark Carney’s campaign pledge to “spend less” on day-to-day spending – or operational spending – in order to “invest more” in capital spending that produces long term economic benefits.
The Liberals have said this approach is modelled on similar moves by Britain and other countries.
PBO welcomes shift to fall budgets, but says capital spending definition ‘overly expansive’
The government said in the budget that it would balance the operating budget within three years. It said this, along with shrinking the deficit-to-GDP ratio over the next few years, would be the government’s two fiscal anchors.
However Jason Jacques, the interim PBO, said in a budget assessment report that the budget categorizes some spending – such as corporate and investment tax credits – as “capital,” even though that would not be allowed under the British rules.
The report says Ottawa should establish an independent expert body to determine which types of spending should be defined as capital.
By the PBO’s definition of capital and operating spending, the operating budget would not be balanced over the next few years.
As for the government’s second fiscal anchor, the PBO says there is only a 7.5 per cent chance that the deficit-to-GDP ratio will decline in every year over the 2026-27 to 2029-30 fiscal years.
“This means the government’s new anchor is unlikely to hold,” Mr. Jacques said in a statement.
The federal budget is seen in Ottawa, on Nov. 4.Adrian Wyld/The Canadian Press
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The report also notes that the budget marks a formal departure from the government’s previous fiscal anchor pledge that the debt-to-GDP ratio would decline over time.
The report says the long-term federal spending plan laid out in the budget is fiscally sustainable, but leaves Ottawa with “limited fiscal room” to cut taxes or increase spending without increasing the debt-to-GDP ratio.
The Nov. 4 budget was the first formal update of federal finances since the December fall economic statement. The PBO points out that Ottawa’s bottom line has deteriorated since then.
It notes that the deficit is now projected to average $64.3-billion annually over the 2025-26 to 2029-30 fiscal years, more than double the projections from nearly a year ago.
“This deterioration primarily reflects new ‘day-to-day’ operating measures and increased provisions for liabilities,” the report states.
John Fragos, a spokesperson for Finance Minister François-Philippe Champagne, said in a statement that the report does not account for the longer term benefits that will come from the budget’s focus on growth and productivity.
“While we respect the PBO and the work they do to provide timely reports to Parliamentarians, the report in question takes a narrow outlook of Canada’s fiscal and economic policy trajectory, looking at Canada’s budget in isolation – absent longer-term considerations and knock-on-effects,” he said.
The House of Commons is scheduled to vote Monday evening on the main government motion seeking approval for the budget. An election could be triggered if the government motion is defeated.
Conservative Leader Pierre Poilievre said the PBO’s “damning report” shows the budget “engages in cooking the books by mislabelling day-to-day spending as investment.” He said it also shows the government is “unlikely to even meet the irresponsible targets that are published in that budget.”
Speaking with reporters in Calgary Friday, Mr. Poilievre was asked if he was confident that all of his party’s MPs will vote against the budget.
“A hundred per cent of our MPs oppose the costly Carney credit card budget that is going to drive up the cost of food, housing and living for Canadians,” he said.
The NDP voted with the government to defeat a Conservative subamendment to the motion last week, but against the government on a Bloc Québécois amendment. The NDP, which has seven MPs, has not yet said how it will vote on Monday.
Last week, NDP interim Leader Don Davies said his caucus had serious concerns about the budget, and was consulting Canadians and stakeholders during the one-week recess. His party has a tradition of voting as one unit on confidence measures, he said, but noted abstentions are a possibility.
A Bloc spokesperson said all 22 Bloc MPs will vote against the budget.
Green Party Leader Elizabeth May said she is planning to vote against the budget, but is hoping the government will make modifications that will allow her to vote yes.
She wants the government to take a stronger stance on addressing climate change, and is meeting with cabinet ministers and staff from the Prime Minister’s Office over the weekend. She declined to name who those meetings were with.
“I think overwhelmingly, every party in this country right now would rather see the budget pass, including Greens,” she said in an interview. “But as currently written, we have a strong obligation not to accept something that’s unacceptable.”
Marie-Justine Torres, a spokesperson for Government House Leader Steven MacKinnon, said that MPs from all parties have an important choice to make, noting the minority Parliament.
“Canadians want stability and serious leadership at this time of economic uncertainty – not more of the same divisive politics,” she said. “We are calling on the opposition to do the right thing for Canadians, and to make this a time to build.”