Economic Update: The deficit’s lower, but still out of control
- Despite splashy announcement, no funds were committed to Canada Strong Fund.
Montreal, April 28, 2026 – While the projected deficit is now $100 million lower than previous projections, the absence of a concrete plan to return to a balanced budget is yet another sign of Ottawa’s lack of discipline in managing public finances, says an MEI economist.
“There is nothing responsible or rigorous about a government that tables a heavily deficit-laden budget while having no concrete plan to stop going into debt at breakneck speed,” says Emmanuelle B. Faubert, economist at the MEI.
A few days into the 2026–2027 fiscal year, the public finances picture has already changed.
With projected revenues of $529.6 billion and spending of $594.8 billion, the government is now projecting a $65.3 billion deficit for the current financial year.
The federal government now projects that its debt will reach $1,473.0 billion by the end of the current fiscal year.
This marks the federal government’s 18th consecutive deficit.
Interest payments on the debt will cost $58.7 billion this year, or $1734,66 per Canadian taxpayer. The federal government expects interest payments on the debt to reach $80.9 billion by 2030, an increase of 37.8 per cent. According to its own projections, the budget will still not be balanced at that point.
“The debt we are accumulating today is far from costless—we pay for it year after year as we waste billions of dollars on interest payments,” adds Ms. Faubert. “This government will need to seriously slow spending growth in order to restore some sustainability to public finances.”
In an Economic Note published earlier this month, the MEI projected that the deficit could reach $117 billion by 2035 if the current fiscal trajectory remains unchanged. Under this scenario, the debt would exceed $2.4 trillion.
According to the MEI’s calculations, rapid growth in defence spending, interest payments, and benefits for seniors would compromise efforts to return to a balanced budget.
To return to a balanced budget while meeting its NATO commitments, the MEI made several recommendations to the federal government, including reforming its senior benefits system, accelerating and extending spending restraint measures beyond 2030, and moderating the growth of transfers to provinces.
The creation of the Canada Strong Fund, announced with great fanfare by Prime Minister Mark Carney yesterday, misses the mark, according to the economist.
“Experience shows that when governments try to use taxpayer money to pick winners and losers, the result tends to be that we all get poorer,” concludes Ms. Faubert. “The federal government already has the tools it needs to bring back private investment—it just has to rein in the excessive regulation and heavy taxation that have driven it away, rather than trying to replace it using public funds.”
Despite a promise to allocate $25 billion into the fund over the next three years, the only commitment as of this budget update is $6 million by 2031 to set up the fund’s transition office.
In an Economic Note published last week, the MEI explained that companies financed through publicly backed venture capital tend to underperform those supported by private funds. This type of intervention also appears to crowd out private venture capital formation.
Canadian businesses spend an estimated 768 million hours a year on regulatory compliance, the equivalent of 394,000 full-time jobs.
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The MEI is an independent public policy think tank with offices in Montreal, Ottawa, and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.
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