Having had the weekend to think about it, we’re even more convinced last week’s federal budget deserves a dismal grade. In addition to our concerns about excessive deficits and eye-popping total borrowing, our dissatisfaction with the $27.5-billion change to the 2025-26 deficit since the spring economic update is growing.
For anyone hoping the budget would signal a much-needed turn in economic and fiscal policy, the very appearance of the document is a warning. Like its recent predecessors, it is hundreds of pages of condescending graphics and politicized prose. It mixes old and new announcements, making readers work needlessly hard to figure out what it actually changes. And it does not present clear numbers on the government’s biggest new commitment: defence. For that matter, the key fiscal numbers are buried in an annex on page 326. And it is billed as the budget for 2026, which is ludicrously late: the 2026-27 fiscal year started on April 1 and is now more than half over.
Plunge into the document, and the disappointment deepens. Canadians have suffered a decade of stagnating living standards — a combined result of weak investment, negligible growth in productivity and U.S. trade aggression. The opening letter from the prime minister and the minister of finance — a peculiar innovation itself, symbolic of the department’s overshadowing by the PMO — talks about a turbulent world, Canadian sovereignty, and a generational plan. But instead of the major changes this language should have heralded — the needed refocusing of federal spending on top priorities, the overdue overhaul of growth-stifling taxes, the end to excessive federal borrowing that diverts saving from productive investment and raise interest costs — the opening highlights of the budget are populist handouts. A top-up in the “groceries and essentials” benefit. A giveaway to homeowners. A new handout for workers. All funded from more borrowing.
Read further, and the gap between what Canadians needed and what the budget delivers becomes starker. For a decade now, federal spending has grown far faster than population, inflation and the economy, with no commensurate improvement in the services Canadians get from Ottawa. But instead of the focused spending review the government should have launched, relentlessly asking which programs deliver value for money, the budget ring-fences major transfer programs and promises unspecified restraint to lower the growth rate of expenditures.
To get the higher investment in infrastructure and productive capacity that really would make Canada more competitive, resilient and prosperous, we need to reduce the taxes that discourage work and investment. The government has promised an overhaul of business taxation. The “productivity mega deduction,” which should have been a budget measure rather than an announcement at an investment summit, does help, but it is far from sufficient and treats different sectors very unevenly. The budget itself delivers nothing new on this vital front.
To limit the erosion of Ottawa’s fiscal position, Canadians needed a credible path to a balanced budget. The budget gives us nothing of the kind. Its baseline shows a remarkable windfall — a dramatically smaller deficit than projected in last spring’s fiscal update. But the budget, like its recent predecessors, spends the windfall to produce almost the same deficit and debt profiles as in the spring update — an average deficit of $57.7 billion from 2026-27 through 2030-31 and a net debt remaining above 40 per cent of GDP. Notwithstanding the government’s attempts to distract from its actual bottom line with a jury-rigged “day-to-day operating balance,” these deficits signal that Ottawa’s capacity to deliver services in the future is deteriorating. Not what Canadians need.
Accentuating these concerns is how the budget fails basic tests of transparency. It does not explain how the spring update got the deficit so wrong — $27.5-billion wrong. Such a large error in an update released almost a month after the fiscal year closed is scandalous. The Department of Finance may not have had the monthly results for February and March but surely there were signs of strength in the daily cash balances they can readily track. The budget does not provide a satisfactory explanation of what went so wrong and no further insight was gleaned from Finance officials at the lock-up. Moreover, the public accounts for 2025-26, which will presumably provide more detail, and should be out before the budget, are months late. Without a better understanding there is no way to evaluate the reasonableness of the budget’s assumption that these late-year developments carry forward. It was deceitful not to reveal such a large error before the budget.
The notion that the spring economic update provides a framework for budget deliberations is now clearly a sham. Pre-budget consultations, the pre-budget report of the Parliamentary Budget Officer, and the C.D. Howe Institute’s shadow budget all had to rely on wrong numbers. Correct information would have provided different possible pathways for the budget — such as almost eliminating the deficit without cutting spending or raising taxes. Parliament should conduct an investigation of the 2025-26 error and how it was handled. The investigation should also examine the government’s new cycle of spring update and fall budgets. Either the public accounts need to come out earlier or the budget should be later.
As serious as any of those deficiencies is the fact that the budget projects massive borrowing, far beyond the amounts needed to finance the government’s deficits and capital expenditures. Over the next three years, the budget shows an astonishing $537 billion of borrowing, $257 billion of which will finance “loans, investments and advances” — money that will flow through Crown corporations such as the Canada Mortgage and Housing Corporation, Export Development Canada, the Business Development Bank of Canada and all the new banks and funds that have proliferated in recent years.
It’s not at all clear what kinds of returns the government will get on these investments. What is certain is that the debt it issues to finance them will require higher interest payments. In recent years, the yield on the government’s investments has been lower than the cost of its debt — which suggests that at least some of the money shown as loans, investments and advances was not loaned on commercial terms and should instead have been shown as spending. The budget’s headline message is about protecting Canadians, yet a careful look at the buried numbers shows increasing exposure to debt-related risk.
Canadians needed a bold change of direction. The 2026 federal budget does not deliver. From format and timing, through failures of transparency, to populist gimmicks instead of fundamental reforms of spending, revenues and fiscal discipline, it falls badly short. Against the grading criteria we set out prior to the budget’s release — promote growth, be transparent, restore fiscal stability, be bold in reforming taxes and spending — we give the budget a D. Its pro-growth measures are minimal, it’s far from transparent, at best it maintains the fiscal status quo, and it signals no bold new reforms in either tax or spending.
