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Economic Viewpoint

Should we be worried about major Canadian government budget deficits?

May 12, 2016
François Dupuis, Vice-President and Chief Economist • Benoit P. Durocher, Senior Economist

According to Budget 2016’s projections, the federal government’s budget balance will worsen substantially in the coming fiscal years. There could even be a $14.3B deficit at the end of the forecast horizon, that is, in 2020–2021. This raises some concern about the federal government’s ability to deal with contingencies, or the vagaries of economic growth. The risk involves lapsing into spiralling budget deficits. However, the federal government does have some leeway. For one thing, the current projections are very cautious in that they artificially worsen the government’s financial picture. For another, Finance Canada has some options for repairing the public finances, if necessary. Under these conditions, the federal government seems fairly well equipped to deal with any contingencies that arise in the next few years without compromising its solid position in terms of its debt load.