OTTAWA — A new study from economist Trevor Tombe warns that Canada’s federal deficit could exceed $100 billion within the next decade. The recently tabled 2025-26 federal budget shows a deficit of $78.3 billion, marking the largest outside of the COVID-19 pandemic. Tombe and collaborator Gabriel Giguère highlight that increased military spending commitments to NATO and rising costs for elderly benefits will significantly pressure federal finances. Without policy adjustments, overall spending is projected to outpace revenue growth, risking a fiscal situation reminiscent of the 1990s, when debt servicing consumed a substantial portion of federal revenues. Tombe suggests that balancing the budget by 2035 would require substantial tax increases or spending cuts, particularly in elderly benefits, which could be adjusted to grow in line with economic growth rather than faster.
Why It Matters
This analysis is critical as Canada has run budget deficits for 18 consecutive years since the 2008-09 global financial crisis. Should the trend continue, it would mark the longest period of consecutive deficits since the country’s founding in 1867. The projected growth in military and social spending, significantly outpacing revenue increases, underscores the challenges facing federal policymakers in managing fiscal health. As public debt rises, the implications for future economic stability and government funding priorities become increasingly significant, especially in light of commitments to international defense obligations and domestic welfare programs.
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