Ottawa’s commitment to ramp up defence spending to meet NATO’s target could balloon the federal deficit to a staggering $92 billion this fiscal year, according to a new analysis by the C.D. Howe Institute. This projection arrives as Canadians grapple with rising living costs and increased scrutiny over government spending.
The think tank’s report, released Thursday, paints a concerning picture of Canada’s fiscal future. While the deficit growth is expected to slow in subsequent years, C.D. Howe forecasts deficits will average around $78 billion annually over the next four years. This is more than double the pre-election estimate provided by the Parliamentary Budget Officer (PBO).
However, the report’s authors caution that even this $78 billion figure rests on optimistic assumptions. These assumptions hinge on the Liberal government realizing “speculative savings” outlined in their spring election platform, primarily through new revenue streams and cost-cutting measures. What if those savings don’t materialize?
According to C.D. Howe’s analysis, failure to achieve these savings could push the average annual deficit closer to $86 billion over the same four-year period. This has raised concerns among opposition parties and fiscal conservatives who argue that uncontrolled spending will burden future generations with debt. “The implications became clear later,” as one voter noted on a local community forum, referring to the longer-term economic ramifications for their family.
Here’s a summary of the key concerns raised by the C.D. Howe Institute:
- Increased defence spending to meet NATO targets will significantly increase the federal deficit.
- Reliance on “speculative savings” makes deficit projections uncertain.
- Lack of transparency in the government’s budgeting process hinders accountability.
- Proposed changes to capital and operating budget streams could be open to abuse.
The Liberal government, led by Prime Minister Mark Carney, recently committed an additional $9.3 billion to defence spending this year alone. This pledge was made ahead of a NATO summit where allies agreed to increase defence and security budgets to five percent of GDP by 2035. C.D. Howe estimates that defence spending will add a “staggering” $68.4 billion to the federal deficit a decade from now.
This increased spending occurs alongside other recent fiscal moves, including legislation to expedite major project development and a one-point cut to the lowest income tax rate. Critically, the Liberal government did not release a spring budget this year, opting instead for a fiscal update scheduled for the fall. Current Observation → Underlying Implication → Broader Context: The absence of a detailed spring budget raises concerns about the government’s commitment to fiscal transparency and responsible spending, potentially impacting investor confidence and long-term economic stability.
The C.D. Howe Institute criticizes Ottawa for making “costly commitments” without providing sufficient financial details to Canadians. The report also questions the government’s plan to separate Ottawa’s budget into capital and operating streams, with a goal of balancing the operating side within three years.
“Without clear standards audited by independent sources, this approach is ripe for abuse,” the report cautions. This could allow the government to manipulate spending categories to present a more favorable fiscal picture, potentially misleading the public.
Parliamentary Budget Officer Yves Giroux has also voiced concerns about the lack of transparency. He did not issue any deficit forecasts in his recent economic and fiscal update, citing the absence of a spring fiscal update and uncertainty about how the government defines its operating and capital spending streams.
In pre-election estimates that did not fully account for trade war impacts, the PBO projected a $42 billion deficit for this fiscal year. However, Giroux now estimates that figure to be between $60 billion and $70 billion. The evolving projections highlight the complexity of forecasting government finances in the current economic climate.
The Canadian Press reached out to Finance Minister François-Philippe Champagne for comment but has not yet received a response. It is anticipated that the government will address these concerns during the upcoming fall fiscal update, providing greater clarity on their long-term fiscal strategy.
On social media, Canadians are debating the merits of increased defence spending versus other priorities, such as healthcare and education. One user on X.com wrote, “Can we afford this? Our hospitals are crumbling!” Another Facebook comment stated, “We need to protect our country. Defence is a necessary expense.” Divergent opinions highlight the challenges of balancing competing priorities in a fiscally responsible manner.
C.D. Howe recommends the government implement steeper cuts to program spending and reduce federal transfers to provinces. These recommendations are likely to face opposition from provincial governments and various stakeholder groups who rely on federal funding. Navigating these competing interests will be crucial for the government as it seeks to address the growing deficit.
The situation is complciated and requires action. However, some wonder if the government is being as clear as it needs to be.