PBO Warns Federal Debt Growing Faster Than Deficit

Parliamentary Budget Officer Annette Ryan warned that Canada's federal debt is accelerating, saying Ottawa's accounting "obscures" the true scale of borrowing.

In its Economic and Fiscal Outlook released ahead of the 2026 federal budget, the budget office said deficits will run about $3 billion higher per year over the next four years than it projected in June, according to The Globe and Mail.

Ryan said debt is growing twice as fast as the growth in deficits. The office attributed the gap to greater use of Crown corporations, government-owned companies that deliver public services and financial programs, and to increased defence commitments.

Those items add to borrowing without adding fully to the deficit. Loans to Crown corporations are financed through borrowing but, under accrual accounting, a method that records costs when resources are used rather than when cash is paid, they are booked as assets rather than expenses. Capital purchases such as military equipment are paid for at purchase through borrowing but recorded gradually as they wear out.

Ryan said federal borrowing will significantly exceed cumulative budgetary deficits over the projection period.

The office projected federal debt will rise to $1.67 trillion in 2030-31, up from $1.3 trillion in 2025-26. Debt as a share of the economy would reach 42.6 per cent in 2030-31, up from 41.1 per cent in 2025-26.

The deficit-to-GDP ratio, a measure of the shortfall relative to the size of the economy, is expected to rise to 2 per cent in 2027-28 from 1.8 per cent in the current fiscal year before easing to 1.7 per cent in 2030-31.

Last year's budget committed the government to keep that ratio declining and to balance operating spending with revenues by 2028-29. The budget office said the government will meet the operating target on schedule. It concluded, however, that the two fiscal anchors, fixed rules meant to constrain borrowing, have imposed limited discipline on spending and borrowing.

The outlook provides a baseline for parliamentarians to assess economic and fiscal outcomes under current policy, according to the Parliamentary Budget Office. It projects real economic growth of 0.9 per cent in 2026 and 1.5 per cent in 2027, with lower real growth reflecting revised tariffs and trade conditions. Higher nominal growth reflects price increases for oil and commodities.

The office said new measures in Budget 2026 could change the timing and profile of either fiscal anchor.