Canada’s parliamentary budget officer is warning that the federal government’s debt levels are something to worry about, with the budget due in a little over a week and the cost of servicing that debt now the fastest growing piece of government spending.
Parliamentary Budget Officer Annette Ryan released her latest economic forecast on Tuesday, projecting slower growth in the country’s real GDP and blaming the United States tariff war on Canada for much of the downgrade. The outlook also spells trouble for the federal debt, projecting a growing debt to GDP ratio in the coming years.
The anchor under strain
A declining deficit to GDP ratio is one of the federal government’s fiscal anchors, a promise that deficits will shrink relative to the size of the economy. According to Ryan, the charges to service the debt are now the fastest growing piece of government spending, which puts pressure on that anchor from a direction the government cannot easily control: interest costs rise whether or not new programs are announced.
Ryan told CTV’s Question Period host Vassy Kapelos, in an interview airing Sunday, that the government’s plan was very expansionary. “It sounds like a strong word to say anchor, but keep in mind the government has a very, very expansionary plan,” she said, when asked what that means for the fiscal health of the government’s finances.
What the budget must show
As CTV News reported, through BNN Bloomberg’s coverage of Ryan’s forecast, the warning lands just before a budget that will test whether the government can reconcile an expansionary agenda with a debt anchor it has promised to hold.
The politics of the budget are now set: the government will argue that investment is needed to offset American tariffs and to build an economy less dependent on the United States, while the budget officer’s numbers will be quoted back at every spending announcement. The budget, when it arrives in a little over a week, will be judged first on whether its debt path bends down or keeps rising, and Ryan has already told Canadians which direction she expects.
