Federal deficit shrinks sharply in first quarter of 2026-27
The federal government posted a deficit of $370-million for the April-to-June period of the 2026-27 fiscal year, a sharp narrowing from the $6.28-billion shortfall recorded in the same three months a year earlier, according to the Finance Department's monthly fiscal monitor (The Globe and Mail).
The improvement was driven mainly by revenue growth. Federal revenue totalled $132.64-billion in the first quarter, up from $120.84-billion in April-to-June 2025 — an increase of nearly $12-billion, or roughly 9.8 per cent year over year (The Globe and Mail).
Spending pressures continued, though at a slower pace than revenue gains. Program expenses, excluding net actuarial losses (accounting adjustments tied to federal pension and benefit obligations), were $117.16-billion, up from $112.34-billion a year earlier. Public debt charges — the interest the government pays on money it has borrowed — rose to $14.61-billion from $13.77-billion, reflecting the continued cost of higher interest rates on the federal debt. Net actuarial losses reached $1.25-billion, up from $1.01-billion in the prior-year quarter (The Globe and Mail).
The quarterly figure builds on a trend visible earlier in the fiscal year. For April and May combined, Canada recorded a budget deficit of C$1.36-billion, compared with C$9.91-billion in the same two months of 2025-26 (Reuters). The June results pushed the three-month total even lower relative to the prior-year comparison, suggesting the revenue trend held through the first quarter.
These figures land against the backdrop of a fiscal year in which the government has already revised its deficit expectations downward. In a spring economic statement, the Finance Department said the deficit for 2025-26 would come in at C$66.9-billion, more than 14 per cent below the C$78.3-billion previously forecast (Reuters). For the first 11 months of 2025-26, the cumulative deficit stood at C$25.55-billion (Reuters).
At the general government level, the deficit is projected to fall from 2.1 per cent of GDP in 2024 to 1.9 per cent in 2025, according to Finance Department briefing materials prepared for a House of Commons Standing Committee on Finance appearance (Department of Finance Canada). Budget 2025, tabled in November, allocated 42 per cent of its measures to strengthening Canadian sovereignty and 36 per cent to bringing down costs for Canadians (Budget 2025).
The spending authorities underpinning the current fiscal year are substantial. The 2026-27 Main Estimates — the document that sets out what departments are authorized to spend — present a total of $502.8-billion in budgetary spending. That figure comprises $230.4-billion to be voted on by Parliament and $272.4-billion in forecast statutory spending that flows automatically without an annual vote (Treasury Board of Canada Secretariat).
Several factors bear watching as the fiscal year progresses. Revenue growth of nearly 10 per cent in the first quarter is outpacing program expense growth of roughly 4.3 per cent, a margin that, if sustained, would keep the deficit on a narrowing track. Public debt charges, however, continue their steady climb, rising 6.1 per cent year over year. With the Bank of Canada's policy rate having eased from its 2023 peaks, the trajectory of debt-service costs over the remainder of 2026-27 will depend on how quickly refinancing of older, higher-interest obligations translates into lower carrying charges. The first-quarter actuarial-loss figure, while modest in dollar terms, also warrants monitoring: it has grown in each of the comparable periods on record, and a widening gap between assumed and actual pension-plan returns would add to the expense line in future fiscal monitors.
The fiscal monitor tracks spending and revenue on a modified cash basis of accounting, meaning figures can shift as year-end adjustments are processed. The first-quarter results offer an early read on 2026-27, but the government's fall economic statement and the year-end Public Accounts will provide the more definitive accounting.
