Federal budget: Carney government posts largest deficit in Canadian history outside the pandemic
- Federal deficit projected to exceed $78 billion
- This is Ottawa’s tenth consecutive unbalanced budget
Montreal, November 4, 2025 — Repackaging record spending as “investments” while offering no credible path back to balance is the opposite of responsible fiscal stewardship, asserts the MEI in response to the tabling of the federal budget this afternoon.
“Canadians should find a deficit this large extremely troubling,” says Emmanuelle B. Faubert, economist at the MEI. “The attempt to disguise it under a new wave of so-called investments makes it even more concerning.
“It’s one thing to spend money you don’t have; it’s yet another to shirk responsibility for it.”
The Carney government is projecting a deficit of $78.3 billion for 2025-2026, up from $48.3 billion last year.
Interest payments are projected to rise to $55.6 billion this upcoming fiscal year, but servicing the debt will mount rapidly: to $76.1 billion by 2030, a 37 per cent spike.
Current debt charges cost taxpayers more than federal healthcare transfers to provinces, which amount to $54 billion annually.
This budget deficit would bring the national debt to $1.48 trillion, and mark the tenth consecutive year without a balanced federal budget. Every newborn baby in Canada now enters the world with a debt of more than $33,000.
Much of the new spending is categorized as capital as opposed to operational, which is a new reclassification scheme unveiled by the Carney government that does nothing to change the total debt. The government’s net debt is predicted to grow by another 21 per cent by 2030, to $1.79 trillion.
The Build Canada Homes program, for one, has an initial $13-billion price tag. The MEI studied a similar program launched in New Zealand, which accomplished just 3 per cent of its total objective.
The MEI warns that this marks a shift toward increased central planning, with Canada becoming an economy where politicians, instead of businesses and consumers, decide which industries succeed.
Overtures in the budget hint at a possible future walk-back of the emissions cap, which the think tank has strongly advocated for. In March, the PBO released a report estimating that the emissions cap would reduce our collective prosperity by $20.5 billion in 2032 and result in 40,300 fewer jobs than there would otherwise be.
A clearer path toward shrinking the federal bureaucracy has been laid out, with the government planning to eliminate 16,000 full-time positions, representing 4.5 per cent of the workforce as of March 2025.
Economist Emmanuelle B. Faubert would like the government to go further. While Ottawa plans to maintain the size of the federal bureaucracy at about 330,000 employees by 2028-29 through attrition, the MEI sees this as insufficient, and urged a more ambitious approach in its pre-budget submission.
The MEI recommended cutting the federal workforce by 17.4 per cent, mirroring the Chrétien-era reductions of the 1990s, which would eliminate roughly 64,000 positions and save taxpayers $10 billion annually.
The MEI welcomes the decision to expand capital cost allowances, letting businesses write off new machinery and equipment more quickly. This measure promotes investment and productivity by reducing the upfront cost of doing business.
“The government may try to rebrand its debt, but Canadians will still be the ones paying it off for decades,” says Ms. Faubert. “Carney calls it a generational budget, and he’s right, but only because future generations will be stuck footing the bill.”
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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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