Budget 2025: Issues for Parliamentarians - Office of the Parliamentary Budget Officer

To assist parliamentarians in their budgetary deliberations, this report highlights key issues arising from Budget 2025.

Highlights

Under Budget 2025 the deficit is projected to average $64.3 billion annually over 2025-26 to 2029-30—more than double that projected in the 2024 Fall Economic Statement (FES). This deterioration primarily reflects new “day-to-day” operating measures and increased provisions for liabilities.

Absent measures since the 2024 FES and measures announced in Budget 2025, the day-to-day operating balance would be in a surplus position over 2026-27 to 2029-30. New operating measures since the 2024 FES and in Budget 2025 shift the day-to-day operating balance from a surplus to a deficit position in 2026-27 and 2027-28.

PBO maintains its view that the Government’s definition of capital investments is overly expansive. Based on PBO’s definition, capital investments would total $217.3 billion over 2024-25 to 2029-30—approximately 30 per cent ($94 billion) lower compared to Budget 2025. Moreover, based on PBO’s definition, the day-to-day operating balance after new measures would remain in a deficit position.

Given the subjectivity involved in defining federal capital investments and their role in guiding fiscal policy decisions and in assessing fiscal performance, the PBO recommends that the Government establish an independent expert body to determine which federal spending categories and measures qualify as capital investment under an expanded definition beyond the Public Accounts of Canada.

Finance Canada projects the deficit-to-gross domestic product (GDP) ratio to increase to 2.5 per cent in 2025-26, before declining over the medium term to reach 1.5 per cent in 2029-30. Based on PBO stress testing, there is a 7.5 per cent chance that the deficit-to-GDP ratio will decline in every year over 2026-27 to 2029-30. This suggests it is unlikely that the Government’s declining deficit-to-GDP fiscal anchor will be respected.

Based on the long-term baseline projection in Budget 2025, there is limited fiscal room for the Government to reduce revenues or increase program spending while ensuring the federal debt-to-GDP ratio in 2055-56 is at or below its initial (2024-25) level. This contrasts with fiscal policy settings over the last 3 years that would have provided more fiscal room to address future challenges and risks.