Canada’s parliamentary budget officer is raising concerns over Canada’s debt levels, with the federal government set to table its budget in a little over a week.
The PBO released her latest economic forecast on Tuesday, which is projecting slower growth in the country’s real GDP forecast, and laying the blame at the feet of the U.S. tariff war on Canada. The outlook also spells trouble for the federal government’s debt, and the cost of servicing that debt, projecting a growing debt-to-GDP ratio in the coming years.
Declining deficit-to-GDP ratio is one of the federal government’s fiscal anchors. But, according to PBO Annette Ryan, the charges to service the debt is “the fastest-growing piece of government spending right now.”
“It sounds like a strong word to say ‘anchor,’ that spending is going to be held in check, but keep in mind … the government has a very, very expansionary plan,” Ryan told CTV Question Period host Vassy Kapelos in an interview airing Sunday, when asked what that means for the fiscal health of the government’s finances.
Ryan also pointed to the Liberals’ plans for pipelines and high-speed rail as examples of large ticket items.
“And they are both spending a lot and borrowing a lot,” she said. “So, I wanted to put that in play, because the anchors are really more like traffic lights instead of an anchor that holds down spending.”
The federal government classifies its spending in two ways: capital and operational. Last month, Prime Minister Mark Carney said his government is on track to balance its operating budget by 2027-28, one year earlier than he first promised.
Ryan, however, projects the federal government will miss that target by a year.
Expanding on the metaphor of traffic lights rather than anchors, Ryan said it appears the federal government is comfortable greenlighting capital spending, whereas operational spending, rather than getting a red light, is more of a yellow.
“Revenues are up strongly,” Ryan told Kapelos. “Operating spending is up strongly as well.”
“So that anchor, we did an assessment in our report, and essentially said that that provides limited fiscal discipline, (by) not stopping spending,” she continued.
Referencing the deficit as a share of GDP, Ryan said government borrowing over the next five years is set to go up — and be “back ended” — so while the deficit is “a bit improved” this year, it’ll be worse by the end of five years.
Asked by Kapelos whether she’s worried about that, Ryan said she “wanted to flag to parliamentarians that it’s something to worry about for sure.”
“It goes to defence spending, so you’re getting an asset associated with that cash spending, that’ll enter the books as it’s essentially depreciated,” she said. “But a lot of that money, a $400-billion difference, will be going to Crown corporations, loans, special funds that are just a step removed from parliamentary oversight.”
“To the extent that the government comes forward with transparency and accountability, then I think that that takes down that worry level,” she added. “But there are definitely new risks when you move in that direction.”
Ryan said taking all those things into account, the first thing she’ll be looking for in the federal budget on Nov. 5 is the deficit, specifically how it will look in the middle term.
You can watch Parliamentary Budget Office Annette Ryan’s full interview on CTV Question Period Sunday at 11 a.m. ET.
With files from CTV News’ Stephanie Ha
