Federal spending more to blame for bleak outlook than U.S. tariffs: PBO

The Parliamentary Budget Officer says Canada’s “on the path to being in trouble” if the Carney government doesn’t rein in its exorbitant spending.”

Source: Rawpixel

The Parliamentary Budget Officer says Canada’s “on the path to being in trouble” if the Carney government doesn’t rein in its exorbitant spending.” Recent figures from the PBO’s office project an increased deficit of up to $68.5 billion by year-end.

“We’re on the path to being in trouble. That’s what our five-year forecast, the numbers that we released earlier this week, indicate,” said interim PBO Jason Jaques during an interview with CPAC on Friday.

“If left unchanged, the fiscal path that the government is currently on will definitely result in us being in quite a bit of trouble and having to make some hard decisions.”

Jaques was asked whether it was the trade policies of U.S. President Donald Trump or the federal government failing to control its spending that put Canada in its current situation of worry.

While the PBO said one can definitely “see the impact” of U.S. import tariffs on the overall growth of the Canadian economy, the “larger part of it is the government policy decisions.”

The PBO’s latest report said that interest charges on the debt alone will cost taxpayers over $55 billion this year. That’s more than the federal government transfers to provinces annually for healthcare.

Additionally, debt interest charges are projected to cost Canadians $82.4 billion by the end of the decade.

“There ends up being about $115 billion in net new costs since the last time we prepared a forecast immediately prior to the election in March 2025,” said Jaques. “A good part of that is attributable to defence.”

Jaques also noted that changes to the tax and revenue side will also play a role in the deficit.

“Six billion dollars a year, so about $30 billion over the next year, plus revenue that we’re no longer going to have because the lowest personal rate went from 15 (per cent) down to 14 (per cent).”

According to the PBO, while the problem is “a little bit of both,” referring to the rippling effects of tariffs on Canadian exports, “certainly at this point, it’s more on the government.”

“The federal debt-to-GDP ratio is projected to increase from 41.7 per cent in 2024-25, rising above 43 per cent over the medium term,” reads the PBO report.

Although the Carney government won’t be releasing its federal budget until November 4, the PBO estimates spending that will far exceed that of former Prime Minister Justin Trudeau, based on the 2024 Fall Economic Statement.

While the Liberals had intended to increase the debt by $131 billion over the next four years, according to the statement, annual borrowing will amount to $255 billion over the same period.