Mark Carney’s budget deficit looms large in Canadian history

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Recently in the House of Commons, Prime Minister Mark Carney’s government narrowly passed its first budget, which projects a $78.3-billion deficit this fiscal year. That likely seems like a big number to most Canadians. But how big is it?

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For starters, it’s almost double the $42.2-billion deficit the Justin Trudeau government planned to run this year and it’s far larger than the deficits Trudeau ran over the past three years, which were in the $35-billion to $62-billion range. In fact, setting aside the extraordinary pandemic years of 2020/21 and 2021/22, Carney’s deficit this year is larger than any Trudeau ran during his time in office, even though Trudeau was the highest-spending prime minister in Canadian history (on a per-person basis).

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To find a non-pandemic federal deficit close to Carney’s deficit, we must go back to 2009/10 when Stephen Harper’s government responded to the global recession with substantial stimulus spending, producing a $56.4-billion deficit. Indeed, as one former Trudeau insider recently noted, Carney’s deficit is roughly similar (in inflation-adjusted terms) to Harper’s recession-era red ink — remarkable given Canada is not in the midst of a similar recession today. And today’s deficit is largely the result of discretionary spending decisions rather than a response to U.S. President Donald Trump’s tariffs.

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The trajectory of the deficit also differs sharply from recent years. After 2009/10, the Harper government reduced the deficit by half within two years and made rapid progress toward budget balance. By contrast, the Carney government’s budget anticipates only a 19% reduction over the next two years and a 28% reduction over four years, with the deficit still sitting at roughly 1.5% of the economy (measured in gross domestic product or GDP) by 2029/30 — comparable to the deficits Canada ran in the years immediately following the 2008 global financial crisis.

If we look back to the early and mid-1990s, we find federal deficits consistently larger (as a share of GDP) than Carney’s deficit. In that period, large persistent deficits and mounting debt left Canada on the brink of a fiscal crisis. While federal finances are not at that point today, our current trajectory could lead us back into this position in the future. Back then, to repair the country’s finances and lay the groundwork for stronger economic growth, the government of Jean Chretien rapidly and substantially reduced spending.

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Taken together, these comparisons underscore the unusual nature of the Carney government’s budget plan. And again, Carney’s deficits are not planned as a temporary response to economic turmoil but as an ongoing feature of federal fiscal policy.

Finally, the Carney government claims it’s fiscally responsible because it plans to balance the “operating budget.” But the government has split spending into two categories: “operating spending” and “capital investment” — which includes any spending or tax expenditure (e.g. tax credits and deductions) that relates to the production of an asset (e.g. machinery and equipment). But, even if the government balances its operating budget in 2028/29, it will still incur a projected deficit of $57.9 billion after accounting for capital investment. In other words, Ottawa will continue to borrow substantial amounts of money each year, with Canadians paying the debt interest, which will reach a projected $76.1 billion by 2029/30 — or more than the government plans to spend on health-care transfers to the provinces that year.

How big is this year’s deficit? Historically big and it will remain so for years to come.

— Ben Eisen and Jake Fuss are analysts at the Fraser Institute

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