A prominent Canadian public policy organization is pressing the newly formed Liberal government to use its upcoming spring economic update as a turning point on federal spending warning that inaction now could saddle younger generations with a crippling debt burden for decades to come.
The C.D. Howe Institute, in a report released April 23, urged Finance officials to treat the April 27 Spring Economic Update as more than a routine fiscal check-in. The think tank wants a concrete, four-year roadmap back to a balanced budget complete with spending caps, credible savings targets, and sweeping tax reforms designed to kickstart investment and economic growth.
“These measures will likely face political resistance, but without bold action, we risk the prosperity and productivity of our nation for future generations,” warned Alexandre Laurin, one of the report’s lead authors.
The timing of the call could hardly be more pointed. The last federal budget revealed a $78.3 billion deficit, with no clear plan in place to return to fiscal balance. Meanwhile, the picture across the provinces is equally grim. Six of Canada’s ten provinces including British Columbia, Alberta, and Nova Scotia, some of which ran small surpluses as recently as 2020 are now projecting widening shortfalls and rising debt loads.
Add it all together, and the C.D. Howe Institute calculates that the combined net debt of federal and provincial governments is on track to hit 82 percent of GDP by 2028 a threshold the report’s authors describe as a serious threat to Canadian living standards.
Compounding the problem are structural forces that no government can easily legislate away: a slowing birth rate, an aging population, and persistently weak productivity growth. Together, these trends point to a future of declining tax revenues and surging spending demands a fiscal squeeze that will tighten most around younger Canadians.
At the heart of C.D. Howe’s critique is what it describes as a decade of unchecked federal expenditure growth. The institute is calling on Ottawa to anchor new spending restraint targets to the comparatively leaner levels seen in the mid-to-late 2010s before, as the report puts it, “spending growth exploded.”
The institute also pushed back on the ambition of savings measures already on the table. The previous budget had outlined plans to find $13 billion in annual savings by 2028 through a spending review a figure C.D. Howe dismissed as falling well short of what the situation demands.
“Fiscal excess has already undermined economic growth and living standards,” the report stated plainly, adding that without meaningful course correction, the ability of Canadians to save and invest will continue to erode.
Beyond cutting spending, C.D. Howe is calling for a broader overhaul of Canada’s tax framework one it argues is necessary to attract business investment and improve long-term competitiveness. In a separate paper, the institute recommended reducing the corporate income tax rate and allowing companies to defer taxation until profits are actually distributed to shareholders.
Prime Minister Mark Carney, when pressed on the corporate tax question last week, defended Canada’s existing position, noting that the country already posts the lowest marginal effective tax rate on investment among G7 nations 13 percent, compared to more than 17 percent in the United States. Whether that argument holds the line against renewed calls for further cuts remains to be seen.
The C.D. Howe Institute is not alone in sounding the alarm. The Montreal Economic Institute recently projected that rising elderly benefits, increased military spending commitments, and growing transfers to provinces could push Canada’s annual deficit to $117 billion by 2035 a figure that, if realized, would fundamentally reshape what the federal government can afford to do.
As Finance officials finalize the Spring Economic Update, all eyes will be on whether the Carney government chooses to treat this moment as an inflection point or opts for a more cautious, incremental approach that kicks harder choices down the road.
