Ottawa not on track to balance operating budget despite Carney’s claim, PBO suggests

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A new report by the Parliamentary Budget Officer says the federal government’s plan to balance the operating budget is based on unclear and sometimes contradictory definitions.

Thursday’s report looks at the 2025 budget promise to balance the operating budget – which the government refers to as day-to-day spending – by 2028-29.

Prime Minister Mark Carney announced at last week’s Canada Investment Summit in Toronto that the government is on track to hit that target one year earlier.

Read the full transcript of Mark Carney’s speech at the Canada Investment Summit

Balancing the operating budget was a central Liberal campaign promise during the 2025 federal election.

A balanced operating budget does not mean the overall federal budget is balanced. The federal government has not set a timeline for eliminating the federal deficit as traditionally defined. The government’s spring economic statement projected this year’s deficit would be $65.3-billion.

Parliamentary Budget Officer Annette Ryan’s report takes note of the Prime Minister’s recent comments, but points out that the PBO’s own analysis suggests Ottawa is not on track to balance the operating budget until 2029-30, one year after the target listed in last year’s budget.

The report cautions that whether that target is reached depends heavily on how spending is categorized as operating versus capital. The PBO describes the government’s classifications as “subjective.”

At a high level, federal transfers to outside groups or other levels of government are considered capital if the recipient must invest in capital formation. Secondly, spending is considered capital if it encourages investment in identifiable sectors or projects.

At a more granular level, however, the PBO found several cases in which similar programs are categorized differently.

“For example, film tax credits are included as capital while journalism tax credits are not,” the report states.

In another case, the Agricultural Clean Technology program at Agriculture and Agri-Food Canada is classified as a capital transfer, while the Agricultural Climate Solutions program at the same department is classified as day-to-day operating, despite both programs having similar goals of supporting farm-level investments.

“These examples reflect a broader pattern. Programs with similar objectives can receive different treatment depending on how directly they link to asset formation and classifying them can depend on judgments that vary program by program without a consistent, published rationale. This makes it difficult to anticipate how future spending will be sorted,” the report states.

Balancing the operating budget is one of the federal government’s two fiscal anchors, or targets, listed in the 2025 budget.

The other target is to maintain a declining deficit-to-GDP ratio.

The 2025 budget shelved a prior fiscal anchor that committed Ottawa to a declining debt-to-GDP ratio.

“Thus, there is not a similar constraint on total debt accumulation,” the PBO report said.

John Fragos, a spokesperson for Finance Minister François-Philippe Champagne, said the fall budget will show that a balanced operating budget will be achieved one year earlier, as the Prime Minister stated.

“This is in keeping with our plan to spend less on operating expenses, giving us more to invest in capital expenditure that will support the economy, draw investment, spur innovation, and advance our growth and competitiveness agenda,” he said in a statement.

Mr. Fragos said targeting an operating budget balance “provides a stricter guardrail than traditional debt-to-GDP anchors” because it targets spending levels rather than ratios.

Conservative MP and finance critic Michael Chong said in a statement that the PBO report shows the government should abandon this approach and stick with established public accounting standards.

“The Carney government’s nonsensical definition of operating vs. capital is a smoke screen and creates confusion about what actually is going on with federal finances,” he said.