Ottawa is borrowing to pay for the past—and we’re all on the hook

Call it a fiscal treadmill. We are borrowing billions, not necessarily to fund new services or infrastructure, but simply to keep running in place, and the speed keeps increasing. With interest rates having risen sharply from pandemic-era lows, debt that was cheap to service has become more expensive. And the cost per borrowed dollar will likely grow as older, lower-rate bonds mature. The Carney government’s defence relies on splitting the budget into “day-to-day” operations and “capital investments,” with a promise to balance only the operating side by 2028/29. On the surface, this sounds reasonable: borrow to invest “growth-catalyzing” capital. In practice, it creates a perverse incentive to label ordinary expenses as “capital investments” so they can be funded by debt rather than current revenue. After all, the more spending the government can classify as “capital,” the easier it is to claim the operating budget is balanced. We are already seeing this definition stretch. The new budget framework classifies items like film and video tax incentives, along with other tax expenditures and subsidies, as capital investment. Even the Parliamentary Budget Officer has noted that the government’s definition of “capital investments” is “overly expansive.” In fact, based on the PBO’s independent assessment, the Carney government has overstated capital investments by nearly $100 billion over six years. When the line between operating and capital becomes blurred, the accounting framework can make the government appear fiscally prudent while total debt continues climbing. Whether the infrastructure plan is actually catalyzing growth is another issue. The government touts a substantial $115 billion in planned “infrastructure investment” over five years. Yet of that amount, only $5 billion (4 percent) is dedicated to trade and transport infrastructure—the critical arteries needed to diversify markets, build supply chain resilience, and drive productivity. Then there is the matter of how we measure that debt. The government showcases the following chart copied from page six of the budget, which appears to give Canada a clean bill of fiscal health: It frequently points to Canada’s collective net debt-to-GDP ratio, which the IMF pegs at roughly 13.3 percent. This appears pristine compared to the G7 average, but it is a misleading figure driven by unique Canadian assets contained in the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP). This is where the real accounting sleight-of-hand occurs. Under international standards, pension plan assets and other financial assets are subtracted from total debt to calculate a “net” figure. While technically accurate, this creates a fiscal mirage. The CPP and QPP hold substantial assets, but these assets cannot be touched to pay government bills. They are committed to future retirees, not debt repayment or program spending. Strip away this accounting treatment and financial assets and consider gross debt—what the government actually owes—and Canada’s position deteriorates dramatically: When measured by total liabilities, Canada’s consolidated gross debt (federal, provincial, and local combined) sits at 111 percent of GDP, placing us much closer to the middle of the pack in the G7 and among the most indebted nations in the OECD. The historical perspective is also sobering. According to the same IMF data, Canada’s all-government gross debt is higher now than it was during the debt crisis in the 1990s. Outside of the 2020 pandemic peak, it is higher than any other level recorded over the past 75 years. Fiscal discipline is important to ensure that the cost of our past choices does not crowd out our future opportunities. With economic growth projected to be modest, the need for a return to prudence is clear, along with a durable and transparent fiscal anchor. As we begin 2026, Ottawa’s resolution should be simple: stop measuring our health by how sick our neighbours are, and start presenting Canadians with a credible plan to live within our means.