Stop Ignoring Fiscal Reality: Rising Debt and Weak Growth Put Canada at Risk

April 23, 2026 – Without bold action, combined federal and provincial net debt is projected to approach 82 percent of GDP by 2028/29 – far above pre-pandemic levels. Canada is drifting toward a fiscal crisis. Yet policymakers, prone to fiscal gimmicks like the recent debt-financed fuel tax suspension, appear unwilling to act, according to a new C.D. Howe Institute report.

In “Fiscal Fantasy: Believe It or Not, Fiscal Reality Has Not Gone Away,” authors Don Drummond, William B.P. Robson, and Alexandre Laurin call for a decisive shift in the federal government’s spring fiscal update. They urge governments to move away from the current trajectory and toward balanced budgets, restrained spending, and tax reforms that encourage investment rather than burden future generations.

“Aggregating across nine provinces, projected total expenses for 2026/27 are $45 billion higher than in their 2024 budgets, with Quebec showing the smallest increase and Alberta and New Brunswick the largest,” says Don Drummond, Fellow-in-Residence at the C.D. Howe Institute. “We’re living in a fiscal fantasy. It’s time to come back to reality.”

The report notes that, with the economy operating close to capacity, ratios of government debt to GDP should be falling. It points out that slower population growth, declining immigration, weak productivity, and an ageing population will weigh on revenues and increase spending demands, and highlights worsening global conditions, including geopolitical tensions in the Middle East and Iran, which are raising inflation risks and increasing risk premiums on debt worldwide. 

“Governments claim we have room for fiscal expansion because our debt burden is lower than that of many other countries, but we have huge unfunded liabilities, and high debt everywhere creates vulnerability for everyone,” says William B.P. Robson, Fellow-in-Residence and President Emeritus.

The authors also warn that younger Canadians will bear the burden of rising debt levels. Tax burdens are already high by both historical and international standards. They call for a more disciplined approach in the federal government’s spring fiscal update, including a realistic assessment of economic and fiscal conditions, a clear path to balanced budgets, firm spending restraint targets, and tax reforms that shift the burden away from income toward consumption while encouraging investment.

“These measures will likely face political resistance, but without bold action, we risk the prosperity and productivity of our nation for future generations,” says Alexandre Laurin, Vice-President and Director of Research at the C.D. Howe Institute.

Read the Full Report

For more information, contact:  Don Drummond, Fellow-in-Residence, C.D. Howe Institute; William B.P. Robson, President Emeritus and Fellow-in-Residence, C.D. Howe Institute; Alexandre Laurin, Vice-President & Director of Research, C.D. Howe Institute; and Raquel Schneider, Communications Officer, C.D. Howe Institute, 647-805-3918, rschneider@cdhowe.org.