PBO Identifies $43.8 Billion Outside Carney’s Operating Budget Target

Of the $52.6 billion in net fiscal measures added to Ottawa’s economic outlook since June, $43.8 billion has been classified as capital, putting roughly 83% outside Prime Minister Mark Carney’s operating-budget balance target, according to figures attributed to the Parliamentary Budget Office’s report released Tuesday.

The remaining $8.8 billion is classified as operating.

Carney’s government aims to balance day-to-day spending against revenues by 2028–29. In September, the prime minister said it was on track to reach that target a year earlier. But the benchmark excludes measures designated as capital under a federal framework that covers more than government-owned infrastructure.

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The framework also recognizes certain business tax incentives, transfers, subsidies, and other measures intended to support investment. These can carry a fiscal cost even when they are treated differently from day-to-day spending for purposes of the target.

The limits of that distinction were already under scrutiny before Tuesday’s outlook. In a September assessment, the PBO found that the government’s approach could classify apparently similar measures differently.

Film tax credits, for example, were treated as capital, while journalism tax credits were not. Two agricultural programs supporting farm investments also received different classifications.

The budget office said Finance Canada had supplied detailed program-level information, but a formal published methodology remained lacking. It also warned that a fiscal rule based on the capital-operating split does not, by itself, restrict total federal borrowing.

The latest outlook adds a financial scale to those concerns. The PBO’s reported projections show cumulative federal deficits of $333.3 billion from 2026–27 through 2030–31, compared with a projected $732.9 billion increase in borrowing over the same period.

The watchdog projects a $63.3 billion deficit for 2026–27, rising to $70.2 billion the following year. That comes alongside a weaker growth forecast of 0.9% for 2026 and 1.5% for 2027, following renewed trade pressures.

Canada’s second fiscal anchor targets a declining deficit relative to GDP, rather than a mandatory reduction in the federal debt-to-GDP ratio.

The consequence is a fiscal system in which success against the operating-budget target can coexist with expanding financing requirements.