Economists sound the alarm about 'very concerning' lack of transparency on federal finances
OTTAWA – Economists are sounding the alarm on what they view is a lack of transparency around the federal government’s spending and fiscal outlook.
Since the spring economic update, Prime Minister Mark Carney has announced several new spending initiatives including a national AI strategy, a food security strategy, a West Coast pipeline project and a cooperative prosperity agreement with the province of British Columbia.
In a recently published report, Desjardins deputy chief economist Randall Bartlett, said the new commitments add $40 billion in extra spending over the next decade, beyond what was announced in the last fiscal update in April.
“A lot of it seemed to be from previous envelopes, but some of it doesn’t all seem to be accounted for,” he said.
Bartlett pointed out his estimate of unaccounted spending is based on incomplete information, because the federal government has not been transparent on how it plans to pay for these measures.
For example, when it comes to financing a new pipeline project, it’s not immediately clear how much of the funding burden will be placed on the federal government through the federally owned Trans Mountain Corp., compared to the Alberta government.
“I think that lack of transparency is very concerning because it all points to high and rising debt levels, and I’m not really sure what sort of restraint outside of reductions to the public service are being shown right now, and what sort of analysis is going into funding these projects,” he said.
Bartlett is not the only one who is raising concerns about the lack of clarity around federal financial commitments.
Don Drummond, former chief economist at TD Bank and professor at Queen’s University, said there is a lack of information surrounding how the federal government has reached its defence spending target under the North Atlantic Treaty Organization (NATO).
Drummond said he assumed the percentage of core defence spending to GDP was two per cent by 2030. But Carney’s comments in May suggested total defence spending would hit four per cent of GDP by 2030, suggesting higher core defence spending of 2.5 per cent.
“Our fiscal framework has already provisioned to achieve four per cent of GDP in total defence spending by the end of this decade, ahead of NATO’s timetable,” said Carney, during an announcement on May 27.
“And we will make additional provisions to achieve NATO’s five per cent spending target on or ahead of schedule,” he added.
Drummond said it’s not shown anywhere, including in the recent spring economic statement.
“I’ve been involved in budgets since 1977, and I’ve never seen such a lack of transparency,” he said.
The office of the Parliamentary Budget Officer has also flagged that the federal government has not shown its work in terms of how it plans to meet its defence spending targets. Drummond said the PBO office is currently waiting to receive more information through access to information requests.
In addition, the PBO’s recent report, published in early June, said it expects higher deficits than what was projected in last fiscal update, averaging $4.6 billion per year between 2025-26 to 2030-31.
The spring fiscal outlook shows the federal deficit at $65.3 billion this fiscal year before declining to $53.2 billion in 2030-2031, slightly lower than what was expected in Budget 2025.
Finance Minister François-Philippe Champagne said earlier this month that Canada can afford increased deficit spending, because it has one of the best fiscal positions among G7 countries. In addition, Champagne has said fiscal spending remains focused on growing the economy.
Bartlett said not all infrastructure projects have the same economic return, and he is old enough to remember Japan trying to boost its economy by building bridges to nowhere.
“This is money that you know is going to be paid off by future generations, as well as being paid down by the current generation,” said Bartlett. “We need to know that rigorous analysis is going into this at the front end, and we haven’t seen that.”
According to the Bank of Canada’s forecast in July, real GDP will grow by 0.7 per cent in 2026, below the 1.1 per cent assumed in the spring economic statement. While growth is expected to rebound to 1.8 per cent in 2027, recent trade tensions with the U.S. and the economy’s recent performance, could mean less growth than what the government is expecting.
“Absolutely, this year unambiguously, the real side of the economy is underperforming the budget assumptions, employment is underperforming the budget assumptions, and in my mind, definitively, the prospects for 2027 are a lot worse, and beyond,” said Drummond.
Bartlett said the federal government does have an upside risk when it comes to the price of oil. Increased crude prices caused by the conflict in the Middle East gave the federal government a budget windfall in the spring, however, the government decided to spend that windfall on new measures.
Despite that upside for revenues, Bartlett said that as more unplanned spending gets added to the outlook, it could push the debt-to-GDP ratio higher year after year.
“That’s essentially the definition of an unsustainable path for Canada’s federal debt,” he said.
National Post
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