Ottawa’s fiscal year shaping up better than budget forecasts: BMO economist

OTTAWA — The federal government’s annual deficit for the fiscal year ending Tuesday is tracking below Ottawa’s own expectations set out in the 2025 budget, despite increased spending.

The fiscal monitor published last Friday showed Ottawa’s deficit from April to January came in at $31.2 billion.

With just two months left in the federal fiscal calendar, those levels are well below the $78.3 billion forecast for this year’s annual deficit in the Liberal government’s budget tabled last November.

BMO chief economist Doug Porter warned it would be dangerous to project where the federal government will end the fiscal year after just 10 months of results, given that March in particular usually sees a major spike in the deficit related to income tax payouts.

The estimate of the federal deficit is also revised to include any expenses that may have been missed through the year before those numbers are finalized, Porter said.

The federal government posted a final deficit of $36.3 billion for fiscal 2024-25 — nearly $9.5 billion or 35 per cent higher than where it stood 10 months into the year.

Still, Porter said contrasting the government’s projections from last fall with the latest fiscal monitor report yields some surprising results.

Over the first 10 months of the previous fiscal year, the federal deficit was $26.8 billion, or roughly $4 billion short of the more than $31 billion recorded this year. Comparing January 2025 to January 2026, the monthly deficit was identical — $5.1 billion.

“Well, that’s barely any deterioration whatsoever,” Porter said. “Whereas in the budget, they told us for the full year, the deficit was going to more than double.”

Porter said he still expects the federal government will post a “very large deficit” for the 2025-26 fiscal year, which ends March 31.

He pointed to announcements like the $4.4 billion in infrastructure funding for Ontario and a raft of other recent spending commitments that could find their way into this year’s fiscal accounting.

Canada’s defence spending, for example, scaled up rapidly to reach NATO targets of two per cent of gross domestic product this year. Porter said some of those expenditures could still land in the final two months of the fiscal year.

Still, Porter said he expects the federal government will end the current fiscal year with a deficit below what it forecast in November.

While the fiscal monitor shows program spending has increased this year under Prime Minster Mark Carney, Porter said those expenditures haven’t yet shown up at the levels projected in the 2025 budget.

Government revenues are meanwhile on the rise, despite expectations of a contraction this year. Interest rates affecting government debt are lower compared with year-ago levels, while Ottawa was again expecting the reverse back in November.

“It’s pretty much a well-rounded story that finances are coming in a bit better than expected,” Porter said.

He said that’s good news, in part because fiscal updates tabled by the provinces in recent weeks have largely shown loftier deficits.

“So it’s good know that Ottawa is doing a bit better than expected,” Porter said.

The Liberals are expected to update their economic and fiscal projections later this spring but have not yet set a date to table the statement.

This report by The Canadian Press was first published March 31, 2026.

Craig Lord, The Canadian Press