Finance Committee on Nov. 24th, 2025

[The Chair, Liberal, Karina Gould]

I call this meeting to order.

Mr. Leitão, we will attempt to have you participate online later, and if there's a problem, we'll deal with that at that time.

Welcome to meeting number 15 of the House of Commons Standing Committee on Finance.

Today's meeting is taking place in a hybrid format.

Pursuant to Standing Order 108(2) and the motion adopted on Wednesday, November 19, 2025, the committee shall commence its study of the review of budget 2025.

I would like to welcome our witnesses.

We have Jason Jacques, interim Parliamentary Budget Officer; Mark Mahabir, the director general and general counsel, costing and budgetary; Kristina Grinshpoon, director, fiscal analysis; Diarra Sourang, director, economic analysis; and Caroline Nicol, adviser-analyst.

It looks like we have a great lineup from the PBO today.

We will begin our round of questions.

I am sorry; Mr. Jacques will make introductory remarks first.

You have five minutes for your opening remarks, Mr. Jacques.

[Jason Jacques, Interim Parliamentary Budget Officer, Office of the Parliamentary Budget Officer]

Thank you, Madam Chair and distinguished members of the committee.

We appreciate the invitation to appear before you today to discuss our budget issues report.

At this stage, witnesses typically read notes that repeat the text of a report you have already read.

Instead, given this committee’s role in reviewing budgetary policy, I would like to take a few moments to discuss the concept of fiscal sustainability.

Fiscal sustainability is the government's ability to maintain—

[The Chair, Liberal, Karina Gould]

I'm sorry, Mr. Jacques, but we're just waiting for translation. Give us a second please.

Okay. Please continue. It looks like the translation is working.

[Jason Jacques]

I will repeat my last sentence.

Fiscal sustainability is the government's ability to maintain its current spending, tax and other policies over the long term without threatening government solvency. One clear indicator of fiscal sustainability is the declining debt-to-GDP ratio. This indicator is important because it compares the country's public debt to its economic output.

A declining debt-to-GDP ratio means that the economy is growing faster than debt is accumulating, making it easier for the government to service its obligations without resorting to excessive borrowing or austerity. It also means that additional fiscal room is being created over time, so the government has fiscal firepower to deal with future challenges and risks, while keeping the debt level below where it started.

This approach guided federal fiscal policy from the mid-1990s until now. During that period, the federal debt-to-GDP ratio dropped from 66% to 41%. While it rose during recessions and the pandemic, it later declined.

Budget 2025 revised the government's fiscal anchors, including cutting the debt-to-GDP anchor. Under the baseline scenario in budget 2025, the federal debt ratio is projected to remain relatively stable over the next 30 years. Finance Canada projects that the federal debt-to-GDP ratio will rise to 43% in 2033-34 and then gradually decline to slightly below its 2024-25 level.

By this measure, the federal government is fiscally sustainable over a 30-year horizon. However, the fiscal room previously created to address future challenges and risks is now much smaller. The next time we face adverse shocks, the government will likely need to take on additional debt, increasing the debt-to-GDP ratio, perhaps to a permanently higher level.

At present, the federal government has the ability to borrow additional funds to address emerging challenges. At the same time, I would note that this change to fiscal management occurred relatively quickly and without parliamentary deliberation. The Prime Minister confirmed the debt-to-GDP anchor was in place in September, and then it was abandoned six weeks later. Such fundamental shifts would benefit from greater transparency.

As always, our office remains committed to its core mandate of providing independent and non-partisan analysis to support Parliament in its scrutiny of public finances and the economy.

In accordance with this mandate, which is enshrined in law, my office has produced an independent analysis of the 2025 budget. This report addresses a variety of issues, including the government’s adoption of a new budget framework that separates operating expenditures from capital investments, and the creation of new budget targets.

We will be happy to answer any questions you may have about our analysis of the budget issues.

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Jacques.

My apologies for overlooking you for a moment there.

We will begin with six minutes for Mr. Hallan.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

Thanks, Chair.

Mr. Jacques, thanks to you and your team for being here and for being so readily available for this committee.

Mr. Jacques, you outlined in your report about budget 2025 that $100 billion was misidentified under so-called investment that should have been operational expense. Why did you reclassify that $100 billion in your report?

[Caroline Nicol, Advisor-Analyst, Office of the Parliamentary Budget Officer]

I'm happy to talk a little bit about how we treated capital investment.

Essentially, we compared the approach of the government, which is a bit broader and includes a greater type of measures, with an approach that more closely follows other jurisdictions and international standards that strictly focus on transactions that directly increase the capital stock and follows definitions from international organizations, from the system of national accounts from the United Nations. That extra amount of money would correspond to categories that the government has added to the definition, which can include tax measures, production subsidies and others.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

Thank you.

Given that you've reclassified that $100 billion, what does that do to the fiscal anchor of the operational budget that they're saying they're going to supposedly balance in three years?

[Caroline Nicol]

I think one thing we highlighted in the report is that it would make it harder to balance the operating budget if the definition of capital were stricter.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

Right, thank you.

For the people who are watching today, what does that say to Canadians? What does all the stuff that we're talking about right now, not meeting a fiscal anchor or risking it, do to a Canadian's bottom line?

[Jason Jacques]

I think the bottom line, as we would see it, is that it does come back to one of transparency. Whether it's the definition of capital where the government has come up with a made-in-Ottawa definition of capital that bears some resemblance to what we've seen in the U.K. and other jurisdictions but, as we point out, is much broader, or the government is making very substantial changes to fiscal anchors within a relatively short period of time, Parliament and I think Canadians would potentially benefit from a more open and clearer discussion around it.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

I fully agree with you.

I think that, Mr. Jacques, you've brought up the word transparency a lot. As you said in your opening statement, the government within six weeks changed its fiscal anchors and the broad definition of capital.

I'd like to hear a little bit more about what you would like to see that you're not seeing today under this government when it comes to transparency. What does that say to the credibility of this government?

[Jason Jacques]

We offer one recommendation in the report specifically with respect to the definition of capital. Given that the government is now planning on using the operating budget or a balanced operating budget as one of the fiscal anchors and that there's the linkage between the operating budget and the capital definition, given that they're intrinsically linked, somebody else should define capital.

The comparison that I've used in other situations is that you need to have a separation of responsibilities. In the case of my 17-year-old son, he's not the person who comes up with his homework assignment; he's the person who does the homework assignment. Then somebody else marks the homework assignment. Certainly, in the case of the capital anchor or the capital definition, it—

[The Chair, Liberal, Karina Gould]

I'm sorry, Mr. Jacques; we're having some trouble with interpretation.

Please carry on.

[Jason Jacques]

Certainly, from our perspective looking at the previous fiscal anchors, the Government of Canada or the Department of Finance doesn't define debt; that's defined by the Public Sector Accounting Board. It doesn't define GDP; that's defined by Statistics Canada.,

Now we've moved into territory where the Department of Finance defines what capital is and they come up with the capital budget, and then they will assess that after the fact and potentially make changes to the definition as they see fit. That's something that we recommend should be changed, consistent with what we see in the U.K. While the U.K. might have a capital definition, it's set by somebody else, and the assessment is also done by somebody else after the fact. It's simply good practice.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

I agree. I really appreciate that you highlighted this transparency piece. I'd like to know what that does to our credibility. If you're pointing out that there's not much transparency, what does it do to Canada's credibility? How would Canadians look at that when it comes to seeing that there's no transparency in the fiscal anchors, as you highlighted before, or the fact that the government has abandoned its debt-to-GDP ratio?

[Jason Jacques]

I would say that, by virtue of this committee meeting here today, for parliamentarians to be spending two hours on this issue, discussing and debating it, this certainly speaks to the credibility and confidence that Canadians can have that parliamentarians are paying attention to the issue.

From our perspective, there are issues that we've raised that we think are pertinent to parliamentarians and that potentially they might want to make changes to. For instance, in the cases of the U.K. and Australia, after an election, a government is legislatively required to identify in crystal clear language what the new fiscal anchors are and how they're going to be measured. That's something that parliamentarians potentially might want to discuss and might see to be worthwhile.

[The Chair, Liberal, Karina Gould]

Thank you.

Mr. Leitão, you have the floor for six minutes.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Thank you.

Mr. Jacques, I would like to thank you and your team for being here. We will have time for a good conversation. There are two topics I would like to discuss with you. We probably won’t have enough time, but I can come back to them later.

First, I would like to talk about long-term financial sustainability. You mentioned that, according to your analysis, the Canadian state remains financially sustainable in the long term.

Can you confirm that this is indeed the case?

[Jason Jacques]

Yes.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Very well, thank you. So financial viability is maintained.

You also mentioned that one of the indicators you use to make this analysis is the debt-to-GDP ratio, but that there are other indicators.

Can you tell us about the other indicators you use to reach this conclusion?

[Jason Jacques]

For us, the most important indicator is the debt-to-GDP ratio, but that is obviously a long-term indicator.

Given your experience, you are surely aware that some indicators relate to the current year and the Government of Canada’s ability to borrow more money on the financial markets, for example. These are indicators that focus on current activities.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

All right, thank you.

In fact, following the tabling of the budget, we saw that the financial markets had not really moved. The Canadian government’s ability to finance its current activities therefore remains intact. Furthermore, as you are well aware, financial markets are also forward-looking. If there were any indication that this ability to access markets could be compromised, we would have already seen it in the form of rising interest rates in the markets, which does not seem to be the case.

The second topic I wanted to address concerns transparency. As you pointed out, this is extremely important. In your analysis, all the information is there. We look at the evolution of the deficit, then the evolution of the debt. We cannot say that we are trying to hide the deficit. We are not hiding anything. The deficit of some $78 billion is clearly indicated. There does not seem to be a problem.

[Jason Jacques]

In this context, the indicators you mentioned show that this is indeed the case.

I must say that we are awaiting responses from a few departments regarding the increase in national defence spending.

In addition, there is discussion on Parliament Hill about the Government of Canada’s plan to implement $60 billion in cuts over the next five years. There is also talk of eliminating 40,000 civil service positions. We do not have the details of this plan, which is an integral part of the 2025 budget. As you can imagine, the Government of Canada’s ability to implement a $60 billion reduction is directly aligned with its ability to meet the new budget target of balancing the operating balance.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

I completely agree with you, adjusting the $60 billion in current government spending is an ambitious goal.

You are right: The details of this will begin to emerge. We also want to do this in a way that is humane and respectful of our employees. A large part of this effort will come from early retirement incentives. We will see how this evolves. Our commitment is to achieve this goal. If the measures initially announced do not seem to be producing the desired results, we can move on to something else.