Federal deficit smaller than expected in spring economic update, but with $37.5B in extra spending

Prime Minister Mark Carney walks to his office for a Cabinet meeting on Parliament Hill in Ottawa April 28, 2026. Photo by Blair Gable /Postmedia

Article content

OTTAWA — Prime Minister Mark Carney’s spring fiscal update showed a smaller than projected budget shortfall of $66.9 billion for the fiscal year that just ended, thanks to a Canadian economy that performed stronger than expected and increased personal and corporate income tax revenues.

Article content

Tuesday’s deficit figure is $11.4 billion below what was projected in the fall, with Budget 2025 initially projecting a $78.3-billion deficit for 2025-2026, the highest deficit outside of the pandemic.

Article content

Article content

Article content

However, the Canadian economy has proven to be more resilient and the conflict in Iran has led to higher oil prices, which in turn led to a boost in revenues.

Article content

Article content

“Today, we’re restoring fiscal discipline,” said Finance Minister François-Philippe Champagne, during a press conference in Ottawa on Tuesday. “These are serious times, and Canadians expect prudent fiscal management.”

Article content

The fiscal update showed that revenue projections compared to Budget 2025 have increased by an average of $7.2 billion annually over the next five years.

Article content

However, the government has decided to spend most of that windfall, with new measures outlined in the spring update projected to amount to $37.5 billion in net new spending over the next six years.

Article content

The finance minister defended the spending, noting that most of that new funding is targeted at affordability measures.

Article content

“We have decided, at a time like that, that Canadians needed support with respect to affordability,” said Champagne. “Affordability is 50 per cent of it.”

Article content

The deficit in Tuesday’s fiscal update is projected to remain elevated at $65.3 billion this fiscal year before declining to $53.2 billion in 2030-2031, slightly lower than what was expected in Budget 2025.

Article content

Article content

Finance Canada figures peg the federal debt at $1.333 trillion last fiscal year and it is expected to rise to $1.629 trillion by the end of the decade.

Article content

Article content

The federal government is on track to meet its two fiscal anchors: balancing operating spending with revenues by 2028-2029 and maintaining a declining deficit-to-GDP ratio.

Article content

The debt-to-GDP ratio is projected to hit 41.5 per cent in 2026-2027 and will remain elevated for the remainder of the decade, finishing at 41.6 per cent in 2030-2031. The federal government has made no commitment to bring this ratio down, which is a fiscal anchor previously held under former prime minister Justin Trudeau.

Article content

Public debt charges, the interest the federal government pays on its debt, are anticipated to hit $58.7 billion in 2026-2027, rising to $80.7 billion by 2030-2031.

Article content

Affordability measures in the update include the Canada Groceries and Essentials Benefit, and the temporary suspension of the Federal Fuel Excise Tax, both come at a combined cost of over $14 billion in the next six years.

Article content

Other new measures in the update include funding for skilled trades people, an effort by the government to address the skills shortage, that will directly impact its major projects and housing agendas.