Federal shortfall hits $6.5 billion in April–May as weak GST and corporate taxes drag down revenue
A 180 percent jump in customs import duties helped prevent a steeper shortfall, as Canada’s federal deficit reached $6.5bn in the first two months of the 2025–26 fiscal year, more than $2.6bn higher than the same period last year.
According to the federal finance ministry, the deficit for April and May widened from $3.82bn in 2024, as program expenses rose 4 percent across all major categories.
Public debt charges also climbed by 3.8 percent due to higher government bond rates.
While revenues remained nearly flat, increasing only $26m, the ministry reported a notable shift in composition.
Declines in corporate income tax and goods and services tax (GST) revenue were partially offset by stronger personal income tax and a sharp rise in customs import duties.
The 180 percent year-over-year increase in duties reflected counter-tariffs on the US introduced in response to US President Donald Trump’s trade measures.
On a monthly basis, Canada posted a $228m deficit in May, reversing a $1.17bn surplus from May 2024.
This shortfall comes amid federal commitments to higher spending.
As reported by the Fraser Institute on July 22, the Liberal platform from April’s election campaign projected a $62.3bn deficit for the fiscal year—roughly $20bn more than the Trudeau government’s previous forecast.
The platform included increased spending on infrastructure, CBC programming, and seniors’ benefits, as well as tax policy changes that reduced expected revenue from capital gains, personal income, and GST for first-time homebuyers.
In addition, Prime Minister Mark Carney’s government committed to raising defence spending to 2 percent of GDP in response to US pressure, adding $9.3bn in new spending this fiscal year.
The cancellation of the digital services tax was estimated to cost $1.2bn in lost revenue.
The Fraser Institute said that these changes put the projected federal shortfall above $70bn for the year.
