Though loquacious by nature, the finance minister wasted relatively little time Tuesday getting to the relatively good news.
“Mr. Speaker, [these] are serious times and Canadians expect us to be good stewards of our economy and manage our public finances with thoughtful fiscal discipline,” François-Philippe Champagne told the House of Commons as he presented the federal government’s first spring economic and fiscal update.
“And we have built the second fastest-growing economy in the G7 — while reducing our projected deficit for 2025-26 by more than $11 billion.”
The Liberals around him stood to applaud.
“This is the essence of being strong fiscal managers,” Champagne ad-libbed.
The Conservatives across the aisle guffawed.
When it was his turn to speak, Conservative Leader Pierre Poilievre lamented that the deficit was twice as high as the one projected a year and a half ago in the waning days of Justin Trudeau’s government. The spring update, Poilievre said, was another example of “credit card budgeting.”
“This prime minister is just another Liberal,” the Conservative leader said.
In this way, Tuesday was just another episode in a debate about federal fiscal policy that has now been running for 11 years.
Compared to the projections in last fall’s budget, the deficit for the 2025-26 fiscal year has fallen from $78.3 billion to $66.9 billion, a difference of $11.4 billion. Therein lies Champagne’s claim to fiscal discipline.
But the Conservatives are more concerned with the current fiscal year and what the previous finance minister thought it might look like.
Back in the long ago fall of 2024, on the day Chrystia Freeland resigned as finance minister, Justin Trudeau’s government projected that the deficit for 2026-27 would be $31 billion. The Conservatives are of the view that the Carney government should have stuck with that.
But in last fall’s budget, the Liberals projected a deficit of $65.4 billion. Champagne’s spring update marginally downgrades the deficit to $65.3 billion.
And therein lie the differing perspectives on display in the House on Tuesday.
The big numbers in the spring update
There was less debate on Tuesday about the underlying elements of the spring update.
The single biggest line item is the previously announced increase in the GST credit — now styled as the groceries and essential benefit. Over six years that will increase federal expenses by $11.8 billion.
A four-and-a-half-month pause in the federal excise tax on gas and diesel will cost another $2.4 billion. The Conservatives have called for those taxes to be suspended for a full year.
The most expensive new item in the spring update is a plan to boost the skilled trades, for which the government has budgeted $6 billion over the next five years. And there are new and not insignificant outlays for student loans and small craft harbours.
Poilievre lodged some complaints about the government’s spending on climate priorities, but otherwise stuck to the biggest numbers. Interest charges on the federal government’s debt, he noted, will reach more than $59 billion this year, more than the federal government transfers to the provinces for health care, and more than it collects from the GST.
WATCH | Conservative leader slams Liberal spending in economic update:
Conservative Leader Pierre Poilievre responded to the Liberals’ spring economic update, tabled Tuesday in the House of Commons. ‘Today’s Liberal fiscal update brings more costs, more debt and more bills on the national credit card,’ Poilievre said.
Beyond this fiscal year, Champagne now projects, annual deficits will gradually decline to $63.1 billion, $57.7 billion, $56.2 billion and $53.2 billion. And in making the case for their deficit spending, the federal government advances a couple of arguments.
The first is that the federal government’s fiscal position compares favourably to the situation in other G7 countries. (The federal debt-to-GDP ratio is projected to be relatively stable over the medium term).
The second is that cuts to the government’s “operational” spending will soon mean that the entirety of the deficit is due to capital spending — spending toward building the sorts of things that should expand the capacity of the Canadian economy.
The extent and impact of those operational cuts are still becoming apparent — and may yet prove unwelcome and unpopular, at least in some corners. And it obviously remains to be seen how quickly and how well the Carney government’s capital spending can improve Canada’s economic situation.
Regardless, the latest round of Liberal spending is altogether too much for the Conservatives. And a government that runs a deficit is of course vulnerable to allegations of being wasteful.
But then it’s also still unclear how or when a Conservative government would balance the budget. Not including possible gains in government revenue from projected economic growth — projections that are not typically included in fiscal projections — the Conservative platform presented during last year’s campaign showed deficits of $43.8 billion, $40.1 billion and $35.6 billion.
Is it possible that the parties are really only haggling over $20 billion or so?
Does anyone want to raise the GST?
The current deficit is 1.9 per cent as a share of GDP — that is, as measured against the size of Canada’s national economy. At that level, it would be just the sixth largest deficit of the last 30 years — smaller, for instance, than the deficits Stephen Harper’s Conservative governments ran in response to the global recession in 2009-10 (3.6 per cent) and 2010-11 (2.1 per cent).
The interest payments that Poilievre points to are real dollars and cents — funds that Canadians might wish to see spent elsewhere. But as a share of the economy, public debt charges are still a long way away from where they were when Canada faced a real fiscal crisis in the mid-1990s, when they peaked at 5.9 per cent of GDP.
As a share of GDP, public debt charges are now projected to reach 2.1 per cent in 2030. That is higher than it was 2015, but still at the level it was in 2007 — when no one thought the federal government’s debt was a problem in need of urgent action.
Finance Minister François-Philippe Champagne spoke to media before tabling the government’s spring economic update, which puts the 2025-26 deficit at $66.9 billion — $11.5 billion lower than its November figure. Champagne said Canadians want, ‘at a time where the world is undergoing unprecedented changes, that people at the helm would be fiscally prudent.’
But then the goal surely is to not end up in a situation like the mid-1990s. And the onus will always be on the government that spends into deficit to justify the trade-offs.
If there is a true fiscal pinch ahead, it might actually be forced by something that Liberals and Conservatives seem to agree about — a significant increase in defence spending.
A report released by the C.D. Howe Institute three weeks ago — a report that received far too little attention — suggested that accommodating that new defence spending while maintaining a sustainable federal balance sheet would require not only slowing the growth of non-defence spending, but also increasing the GST by two points.
Strangely, for all the interest in fiscal discipline, no federal party has championed that idea.
