Breaking the Cycle: The C.D. Howe Institute’s 2026 Shadow Budget

C.D. Howe Institute Experts Chart a New Economic and Fiscal Course for Canada

October 22, 2026 – Years of weak economic growth and mounting federal fiscal pressures require major spending and tax reforms, according to a new C.D. Howe Institute report. 

In "The Growth Imperative: The C.D. Howe Institute’s 2026 Shadow Budget", authors Don Drummond, William B.P. Robson, and Alexandre Laurin propose a new economic and fiscal course designed to strengthen economic growth, improve living standards, and return the federal budget to balance by 2030/31. 

Canada's economic and fiscal challenges have become increasingly intertwined. Over the decade to 2023, Canada's real gross national income per person grew at an average annual rate of just 0.5 percent, ranking last in the G7 and 32nd among 35 OECD countries. Federal debt is growing faster than the economy, and federal debt-servicing costs are projected to exceed $80 billion annually by 2030/31. 

“Canada's sluggish economic growth and federal fiscal excesses have become a vicious circle,” says Laurin, Vice-President and Director of Research at the C.D. Howe Institute. The authors warn that further spending commitments, especially on defence, will further strain federal finances and constrain private sector investment. 

Under the authors’ adjusted economic outlook, the federal deficit would stand at $78.4 billion in 2030/31, with the debt-to-GDP ratio reaching about 45 percent. The Shadow Budget would instead return the federal budget to balance by 2030/31 and reduce the debt-to-GDP ratio to about 40 percent. 

The Shadow Budget proposes a comprehensive review of federal spending based on value for money, tighter expenditure controls, greater fiscal transparency and a “big bang” revenue-neutral tax reform that would strengthen incentives for work, saving, and investment while supporting stronger economic growth. 

“The 2026 Shadow Budget therefore aims to shift federal finances from stifling growth to supporting it,” says Drummond, Fellow-in-Residence at the Institute. “That shift requires balancing the budget, reducing the debt burden, and addressing the tax system's most growth-damaging features.” The Shadow Budget also advances a new fiscal framework focused on greater transparency, accountability, and long-term planning. Among other measures, it calls for binding multiyear spending limits, clearer reporting of government spending, and an end to the growing use of fiscal updates as de facto mini-budgets. 

Eliminating federal deficits is a key goal of the Shadow Budget, says Robson, President Emeritus at the Institute. “Matching expenses to revenue imposes discipline unlike any other fiscal target. Responsible fiscal policy pays the bills as they come due.”  

Read the Full Report 

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. 

For more information, contact: Vaishnavi Santhirathasan, Communications Coordinator, C.D. Howe Institute, 416-865-9935, vsanthirathasan@cdhowe.org.