Debt charges hit $20 billion for the period while the PBO questions the deficit path
The federal government posted a deficit of $5.1 billion for April to July, the first four months of its 2026-27 fiscal year. That is down from $7.8 billion in the same period a year earlier.
The Finance Department’s monthly fiscal monitor showed the figures, The Canadian Press reported. The fiscal year runs to March 31, so the result is a year-to-date tally rather than a full-year projection.
Revenue and spending
Revenue totalled $175.5 billion, up from $163.4 billion a year ago. The department credited higher personal income tax revenue, other revenues and GST revenue.
Program expenses, excluding net actuarial losses, reached $159 billion, up from $151.3 billion. The department cited higher direct program expenses and major transfers to persons.
Public debt charges, the interest the government pays on its borrowing, totalled $20 billion, up from $18.6 billion. Net actuarial losses were $1.7 billion, up from $1.3 billion. The department has described these as amounts tied to the revaluation of government pension and other employee benefit plans.
For April and May alone, the Finance Department reported a deficit of $1.4 billion on revenues of $87.8 billion.
What forecasters expect
Parliamentary Budget Officer Annette Ryan released her office’s economic and fiscal outlook June 4. The office expects this fiscal year’s deficit to edge down to $71.8 billion, about $6.5 billion higher than Ottawa’s spring projection, The Canadian Press reported.
The office expects annual deficits to average $4.6 billion more than Ottawa projects. It attributed that mainly to lower income tax revenue and higher program expenses, partly offset by lower public debt charges.
The budget office also “stress tested” the government’s goal of a declining deficit-to-GDP ratio in every year of the forecast. It put the odds of meeting that goal at less than 1%. It put the odds that the federal debt-to-GDP ratio declines over the five-year horizon at roughly 40%.
Conservative MP Jasraj Singh Hallan said the report “totally debunked” the government’s claims of fiscal sustainability. Finance minister François-Philippe Champagne responded: “I stand by our projections.”
“What Canadians have seen is that we have a declining deficit and I think Canadians understand that’s important to restore fiscal discipline,” Champagne said.
In a separate assessment of the spring economic update, the budget office noted the government expects public debt charges to rise from 10.6% to 13.2% of revenues between 2025-26 and 2030-31.
Rates and trade
The Bank of Canada held its policy rate at 2.25% on Sept. 2. Its next scheduled announcement is Oct. 28.
“Stronger-than-expected Q2 GDP growth reduced the case for additional rate easing, while underlying inflation pressures remain generally contained, leaving little justification for rate hikes,” TD economist Marc Ercolao said, according to TD Stories. TD expects the Bank to hold the rate through the rest of the year.
The budget office’s June outlook assumes all tariffs between Canada and the United States currently in place will remain over the forecast horizon. On the same day the fiscal monitor was released, US trade representative Jamieson Greer said Washington sees little need to hurry a deal. “There’s no urgency on our side, I would say,” he told CNBC.
