Canada’s Parliamentary Budget Officer (PBO), Annette Ryan, has issued a warning about the rapid growth of federal debt ahead of the government’s 2026 budget, scheduled for Nov. 5. In its Economic and Fiscal Outlook released Tuesday, the PBO cautioned that government borrowing is increasing significantly faster than the federal deficit, partly due to accounting practices that obscure the true scale of debt.
The report notes that while factors such as higher oil prices have temporarily improved the government’s fiscal position, recent spending announcements have already outpaced that fiscal capacity. Federal deficits are projected to be $3 billion higher annually over the next four years compared to the PBO’s June forecast. Despite this, the accumulation of debt is rising at twice the rate of the deficits because of increased reliance on Crown corporations and expanded defence commitments.
Loans to Crown corporations — entities like Build Canada Homes, the Canada Strong Fund, and the newly proposed Canadian Corporation for Defence Investment — are funded through federal borrowing. However, under the government’s accrual accounting system, these loans are recorded as assets rather than expenses and do not appear as deficits. Similarly, capital expenditures, such as purchases of military equipment, are financed upfront with borrowed funds but expensed gradually through amortization, limiting their immediate impact on the deficit figure.
“Federal borrowing will significantly exceed cumulative budgetary deficits over the projection period because capital expenses and loans to Crown corporations are recorded as assets rather than liabilities,” Ryan said. She added that the current accounting approach “obscures the realities of cash debt and raises questions about whether the fiscal framework provides a complete and transparent picture of Canada’s fiscal sustainability.”
Conservative members of Parliament responded sharply to the report. Deputy Conservative leader Melissa Lantsman described the findings as “scathing” and urged the Liberal government to curtail spending. Finance Minister François-Philippe Champagne defended the government’s position, highlighting Canada’s triple-A credit rating and asserting that Ottawa maintains fiscal discipline. He also criticized opposition Republicans for “talking down the Canadian economy.”
The PBO projects that the federal debt will grow from $1.3 trillion in 2025-26 to $1.67 trillion by 2030-31, with the debt-to-GDP ratio rising to 42.6 percent from 41.1 percent. Deficits relative to GDP are expected to edge up slightly from 1.8 percent in the current fiscal year to 2 percent in 2027-28 before declining to 1.7 percent in 2030-31.
The report notes that rising deficits would run counter to the government’s fiscal anchor commitment to maintain a declining deficit-to-GDP ratio. However, it acknowledges that while operating budgets are projected to balance by 2028-29, government spending and borrowing have been only modestly restrained by existing fiscal targets. The PBO reiterated its previous recommendation to focus on the debt-to-GDP ratio as a more effective fiscal anchor.
International bodies such as the International Monetary Fund have also urged Canada to reinstate the debt-to-GDP target, arguing it would enhance fiscal discipline and transparency while preserving room for strategic investment.
The PBO further highlighted the growing cost of debt servicing, which it expects to reach $83 billion by 2030-31, up from $24.5 billion in 2021-22. This increase is seen as the fastest-growing federal expense, with per capita debt charges rising from $640 to $1,952 over the same period, reflecting slow population growth and the expanding debt load.