The federal government’s Fall Economic Statement (FES) downplayed economic risks despite geopolitical volatility and failed to use updated demographic data tied to its recent changes to immigration policy, according to a new report by the Parliamentary Budget Office (PBO).
The report, published on Jan. 22, said the statement had presented upside and downside economic scenarios that had a “limited range of possible economic outcomes” involving temporary shocks to GDP over the medium term. The downside scenario forecasted that GDP would be only 0.8 percent lower than the planning assumption for the same year, the report noted.
“Given the uncertain and volatile global context, the Government’s economic scenarios downplay risks,” the PBO said.
The Bank of Canada also warned in December that due to the threat of tariffs by the incoming U.S. administration, Canada’s economic outlook was “clouded” amid heightened uncertainty. President Donald Trump reiterated on Jan. 20 that he is looking at imposing 25 percent tariffs on Canada on Feb. 1.
The PBO report noted that while the 2023 FES had set an objective of keeping the 2023–2024 deficit below $40.1 billion, the latest FES estimated the deficit for that year was $61.9 billion. Ottawa said the high deficit was due to “significant unexpected expenses related to indigenous contingent liabilities” and allowances for COVID-19 pandemic supports, which cost around $16.4 billion and $4.7 billion respectively.
The PBO said that even if one-time or exceptional spending items had been excluded, the deficit would have been $40.8 billion. Revenues were 0.3 percent lower than estimated in 2023, while program expenses were 3.1 percent higher than anticipated, the report noted.
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Ottawa had also set an objective in 2023 of keeping a declining debt-to-GDP ratio, and it met this goal with a ratio of 42.1 percent in the 2023–2024 fiscal year. However, the PBO report said if there had not been a “historical revision” of nominal GDP in 2023, then the debt-to-GDP ratio for this year would have been 42.8 percent.
Immigration Transparency
The report also said Ottawa had shown “no transparency” when it came to its assumptions around immigration numbers. It said the PBO and private sector’s economic forecasts had been prepared before the federal government announced it was updating its immigration policies, meaning they were unable to incorporate the effects of those shifts into their forecasts.
Immigration, Refugees and Citizenship Canada made a substantial change to its immigration policies in October, announcing the country’s targets would fall from 500,000 new permanent residents in each of the next two years to 395,000 in 2025 and 380,000 in 2026, and decline further to 365,000 in 2027. Canada’s population rapidly increased from 38 million in July 2020 to nearly 41.6 million in January 2025.
The PBO report said incorporating these updated demographics would “likely lead to a significant downward revision in both the baseline and downside scenarios.” It also criticized the FES for highlighting the positive impacts of immigration while not mentioning negative impacts.
An RBC report on Canada’s 2025 outlook has predicted that reduced immigration targets “could subtract nearly one percentage point in total from GDP forecasts over the next three years,” while having the benefit of helping rebalance Canada’s housing market.
The PBO said it plans to publish its own estimates of the economic impacts of Ottawa’s immigration plans later this winter.
Additionally, the report said there was a “historically long delay” of the tabling of the public accounts, which came nearly nine months after the fiscal year had ended. The PBO also noted that the audited financial statements were “inexplicably” tabled the day after FES presentation date of Dec. 16, as opposed to being released prior to or alongside the government’s fiscal plan.
“By publishing the public accounts earlier, the government would provide parliamentarians with more time for ex-post financial scrutiny and better information for assessing the government’s budget plans and estimates,” the report said, adding that Ottawa’s ability to produce “timely, high-quality Public Accounts is deteriorating.”
