The Parliamentary Budget Officer cut its outlook and now projects the 2025-26 budget deficit will jump 32% to $68.5 billion (2.2% of GDP) from an estimated $51.7 billion in 2024-25 as tariffs and weaker trade lower growth and revenues while new measures add spending.
The PBO says persistent deficits above 1% of GDP push the federal debt-to-GDP ratio up from 41.7% in 2024-25 to above 43% through the medium term, and compared with March report the ratio is 4.5 percentage points higher by 2029-30, no longer on a declining path.
Federal debt rises from $1.28 trillion in 2024-25 to $1.66 trillion in 2030-31. The PBO projects Borrowing Authority Act requirements begin exceeding the current $2.126 trillion cap in 2026-27, implying an amendment and assessment to Parliament will be required under the Act.
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Growth is marked down: real GDP is 1.2% in 2025 and 1.3% in 2026 (previously guided at 1.7% and 1.5%), before 1.8% in 2027 and 1.7% on average in 2028-2030. Tariff-driven frictions and weaker trade conditions lower the level of real GDP by 0.5% by 2030.
The tax base is smaller too: nominal GDP averages $12.9 billion per year lower over 2025-2029 than in March.
Assumptions embed monetary support as the Bank of Canada policy rate holds at 2.5% before returning to 2.75% in late-2026.
Labour slack persists with unemployment at 7.2% end-2025, easing to 5.6% by 2030. Price pressures cool as tariff effects fade with CPI averaging 1.9% in 2025 and 1.6% in 2026, stabilizing near 2% thereafter.
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On policy settings, the status-quo fiscal track now includes $115.1 billion in net new measures announced since the 2024 Fall Economic Statement. It books $8.3 billion in 2025-26 for national defence and $6.6 billion per year ongoing, while excluding incremental costs to reach the NATO defence investment pledge and the government’s comprehensive expenditure review.
The arithmetic behind the wider 2025-26 deficit is explicit. Revenues edge up to $504.2 billion, while total expenses reach $572.7 billion. Program expenses are $513.0 billion and public debt charges climb to $55.3 billion in 2025-26, rising to $82.4 billion by 2030-31 as debt stock grows faster than revenues. The debt-service ratio increases from 10.7% in 2024-25 to 13.7% in 2030-31.
Customs duties reflect countermeasures, with $12.5 billion in 2025-26 and then easing as tariffs are wound down. The PBO returns the full $8.0 billlion in countermeasure revenues (2024-25 to 2026-27) to affected sectors.
Tariffs and countermeasures in place as of September 5 are assumed to remain through fiscal 2025-26 and be phased out by December 31, 2026.
Relative to March, the fiscal track deteriorates materially. The PBO’s budgetary deficits are $26.6 billion higher on average over 2024-25 to 2029-30, driven by lower revenues and higher program expenses, alongside higher public-debt charges. The end result is the higher, non-declining debt ratio noted above.
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