The Parliamentary Budget Officer has sharply criticized the Carney government’s treatment of its 2025 budget, warning that Ottawa is reclassifying billions of dollars of routine spending as long-term investments — a move that obscures the true size of the federal deficit.

In a new report, interim PBO Jason Jacques concludes that the government’s definition of “capital investment” is “overly expansive,” encompassing items such as corporate income tax credits, investment tax credits and various subsidies — categories that would traditionally be recorded as operating spending. By applying a more conventional accounting lens, the PBO estimates that planned capital investment from 2024–25 to 2029–30 is about $94 billion lower than the government’s projection.

Jacques also warns that, despite Ottawa’s framing of Budget 2025 as a transition toward investment-led growth, it is day-to-day program spending that is driving deeper deficits. He attributes much of the deterioration in the fiscal backdrop to $87 billion in new net operating costs over five years, as well as more than $65 billion set aside for contingent liabilities like court settlements, environmental obligations and tax provisions.

The report projects an average deficit of $64.3 billion annually from 2025–26 through 2029–30 — more than double what the government had forecast in its previous fiscal update.

Jacques goes further, suggesting that Ottawa’s redefinition of capital raises serious transparency concerns. “By including … tax credits and subsidies,” he argues, “the framework blends policy measures with capital formation.” To address that, the PBO calls for the creation of an independent expert body to establish criteria for what may count as capital — to avoid subjective accounting.

From a long-term perspective, the PBO strikes a cautious tone. While it deems the fiscal trajectory sustainable over decades, it warns Ottawa has limited room to maneuver. If Ottawa were to cut taxes or expand program spending going forward, the office notes, the debt-to-GDP ratio could easily slip off track.

On the government side, a spokesperson for Finance Minister François-Philippe Champagne pushed back, saying the PBO’s view “takes a narrow outlook … looking at Canada’s budget in isolation — absent longer-term considerations and knock-on effects.”

Fiscal transparency advocates and critics alike are now seizing on the report. Some argue that Ottawa’s accounting gives political cover, making deficits seem more palatable by presenting them as long-term investments. Others warn that this sleight of hand could undermine public trust.

With Parliament gearing up to review Budget 2025 in the coming weeks, the PBO’s findings may intensify scrutiny of not only Ottawa’s spending plans, but also the way it classifies and presents them.