Government Operations Committee on June 16th, 2026

[The Chair, Conservative, Kelly McCauley]

Good afternoon, everyone. We are in session.

Our friends with the media are welcome to stay, but perhaps they can turn off their cameras.

We welcome back today our Parliamentary Budget Officer.

Before we start, colleagues, very quickly, we discussed among the parties that we will adopt, by UC, the motion by Ms. Sudds from June 10 regarding M-16. Are we fine with that?

(Motion agreed to [See Minutes of Proceedings])

That's wonderful.

We'll do the two budgets now because we have a heavier crowd in the second hour. We have two budgets to approve. One is for today's study. The second one is for the extension of the CER study.

Do we have unanimous consent for them?

[Some hon. members]

Agreed.

[The Chair, Conservative, Kelly McCauley]

Thank you very much. That's wonderful.

PBO Ryan, welcome back to OGGO. We'll turn the floor over to you for five minutes. Please go ahead.

[Annette Ryan, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer]

Thank you very much, Mr. Chair.

I am very pleased to be here today, and I thank the committee for the invitation to discuss my office's recent reports. One is on the supplementary estimates (A) for 2026-27, and the other one is our economic and fiscal outlook, published in June 2026.

I am joined today by Mark Mahabir; director general and general counsel for costing and budgetary analysis; and Govindadeva Bernier, director of budgetary analysis, who jointly led the work for our report on the supplementary estimates (A) for 2026‑27, published on June 9, 2026.

I am also joined by Kristina Grinshpoon, director of fiscal analysis; and Caroline Nicol, adviser-analyst, who respectively oversaw and drafted our economic and fiscal outlook published on June 4, 2026.

First, let me begin with the estimates.

The supplementary estimates (A) seek $3.6 billion for 16 measures from budget 2025. Together with the $14.7 billion sought through the main estimates, we assess that approximately 90% of budget 2025 expenditures planned for this fiscal year have now been reflected in the estimates.

The supplementary estimates (A) also include $358 million for six measures announced in the spring economic update of April 28. This amount represents 4% of new expenditures announced in the spring economic update planned for this fiscal year.

I would now like to highlight a few elements of our economic and fiscal outlook.

The economic and fiscal outlook, or EFO, was published on June 4 and was prepared using information available as of May 8, following the spring economic update on April 28—all 2026.

As committee members know, economic projections are based on information available at a given time. Our report was prepared using the information available on May 8, 2026. As a result, it did not take into account the national accounts published by Statistics Canada on May 29 of this year.

On May 29, Statistics Canada revised its annual real GDP growth for 2025 upward from 1.7% to 1.9% for the entire year. In that release, StatsCan also reported that real GDP contracted at an annualized rate of 1% in the fourth quarter of 2025 and a further 0.1% in the first quarter of 2026.

These revisions to GDP did not materially change the forecasts we presented in our economic and fiscal outlook on June 4, which already anticipated below-potential economic growth through 2026. In this way, parliamentarians should view our projections as reflecting continued below-potential growth through 2026, broadly consistent with recent assessments by the Bank of Canada.

That being said, based on the information currently available, the parliamentary budget office is not of the view that the Canadian economy is on a clear negative trajectory. The two quarters of negative growth into early 2026 have more recently been followed by strengthened monthly data in respect of GDP, employment, trade and manufacturing. It is important to keep in mind that economists monitor indicators associated with recession because they may signal the need for significant changes in economic policy.

For example, deteriorating economic conditions could lead governments to consider additional spending measures to support the economy, measures which parliamentarians might have differing views on.

As such, the parliamentary budget office will continue to monitor incoming economic data and evolving economic conditions. We will continue to update parliamentarians on our assessments.

Thank you.

We would be pleased to answer your questions.

[The Chair, Conservative, Kelly McCauley]

Thank you.

We'll start with Mr. Chambers.

Welcome back to OGGO, Mr. Chambers. The floor is yours for six minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Mr. Chair. It's a pleasure to be at the mighty OGGO.

Ms. Ryan, thank you for being here. I would like to congratulate you on your appointment. It's the first time we've seen each other at committee. Thank you for your service to Canadians.

I appreciate the work that your office has put forward. You've come here with your officials, who I know do a tremendous amount of work. I appreciate some of the recent work you've released.

If I may, I'd just like to spend—

[The Chair, Conservative, Kelly McCauley]

We'll reimburse you for your time, Mr. Chambers.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much.

I appreciate the opportunity to ask some questions today. I'll focus on your recent economic outlook, if that's okay.

One thing I've been starting to pay a bit more attention to is debt service costs. We've seen even in the baseline projection provided in the fall economic update that just within a few years, debt service costs will approach about $80 billion. Another fact that I understand could impact the potential for the fiscal outlook is that about 40% to 50% of federal government debt is purchased by hedge funds. This is outlined by the Bank of Canada. It's been outlined as a rising vulnerability.

If there is an economic event outside of Canada and a large proportion of our expenditures go to servicing the debt.... We also fund our debt with short-term instruments of mostly two and three years. The average maturity is about 6.6 years for the Canadian federal government, as I understand it. This year we have to borrow $510 billion in the market. Next year we have to borrow almost $600 billion. The year following that, two years from now, it will be another $550 billion, which means we're basically rolling over the debt frequently.

My questions are more around the sensitivity now to the fiscal framework based on borrowing costs. We've seen the five- and 10-year rates go up. Borrowing costs are going up and are not coming down, but the entire fiscal projection the government makes is actually on borrowing costs going down.

I'm wondering if this is an issue you're exploring. I know that you do some sensitivity analysis. I just wanted to get your feedback on keeping an eye on the debt service cost number.

[Annette Ryan]

It is very much an issue that we are concerned about within the parliamentary budget office. In our report, we've tried to start bringing more focus to the question of debt service charges, first by portraying the track that you described from different perspectives. We highlight, for example, that we see debt service charges, as a share of every available dollar, rising over a five-year period from essentially 10.6¢ on the dollar up to 13.1¢ by 2030-31. That's one way to draw attention to this. It is starting to rise under current tracks with current expected interest rates and so on. From a per capita basis, that rises from roughly $1,300 to almost $1,900. Under a status quo track, it very much is showing the type of profile that you're talking about.

I think the Bank of Canada has been increasingly pointed in drawing attention to the dynamics that you speak about, including the ownership of amounts of debt by hedge fund owners, as well as the potential for essentially coincident risks happening in the global environment in stock markets and so on. From a number of perspectives, that draws our attention to risks within that debt service profile.

While not defining the question here, I'd certainly be open to speaking with you and other OGGO members about what type of sensitivity analysis we might put in play that would help in understanding these measures and where the risks are, for sure.

[Adam Chambers, Conservative, Simcoe North, ON]

Debt service costs are now basically the second-largest line item in the budget. OAS costs are higher. They're more than we spend now on health care, and that gap is going to grow in the next couple of years. Understanding the sensitivity about what would happen if interest rates don't drop, as the government predicts, what is that going to do to the fiscal framework? I think it will prevent some money being available for more productive uses, whether it's tax cuts or social programs.

I'll ask about the impact on the fiscal anchor, because I know that was also part of the work you did. Did I read your work correctly that, based on some of your assumptions, the government has about a 1% chance of keeping its new fiscal anchor?

[Annette Ryan]

That was very much part of our analysis in the fiscal outlook. To your earlier points about sensitivity, I agree, and we'll follow up on that.

In terms of the analysis of the chance the government will meet its fiscal anchor for a declining share of deficit to GDP, briefly what we did is looked back at the different types of shocks that have happened in the past and at year-over-year shocks. The result that the government, absent policy changes, would have roughly a 1% chance of meeting its deficit as a GDP target rests on the reality that both deficits—the numerator and GDP itself—are quite sensitive on a year-to-year basis.

Given that this measure is defined as a decreasing track every year, that's what drives the mathematical baseline that it's going to be a very hard target to hit, but not impossible, especially if the government wants to manage it very carefully. That is essentially the message we want to put forward with that analysis.

[Adam Chambers, Conservative, Simcoe North, ON]

I understand that if they break it, that would be the third fiscal anchor not kept in the last three or four years.

[Annette Ryan]

I haven't counted, but—

[Adam Chambers, Conservative, Simcoe North, ON]

Does that sound about right?

[Annette Ryan]

It sounds about right, yes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Mr. Chair.

[The Chair, Conservative, Kelly McCauley]

Thanks.

Mr. Gasparro, please go ahead.

[Vince Gasparro, Liberal, Eglinton—Lawrence, ON]

Thank you for being here again. It's great to see you.

In your PBO report, you touch on real GDP. As you know well, when you're looking at a country's fiscal position, reviewing it relative to its peers' is incredibly important, because it gives the appropriate context for the macro global economic environment.

For 2026, you rightly point out that real GDP is projected to rise by 1.1%, followed by 1.6% in 2027. The IMF expects Canada to have the second-strongest economy this year among G7 countries, after the United States. In addition, external forecasts from the OECD suggest that Canada is expected to grow at the second-fastest pace in the G7 this year and next.

Does the PBO analysis show a similar pattern of relative strength?

[Annette Ryan]

We did not do an analysis of international comparables of growth rates. That type of analysis checks with my casual understanding of international growth rates, so I would say that this sounds about right.

[Vince Gasparro, Liberal, Eglinton—Lawrence, ON]

You also touched on the main estimates and the supplementary estimates.

In budget 2025, we're making strategic capital investments to raise long-term growth rates and to try to build a strong economy off of infrastructure and housing. Some of our largest expenditures obviously flow into investments in housing and infrastructure, and the totals are significant, whether it's $2.3 billion going into the build communities strong fund or additional funding for Build Canada Homes and the Canada Infrastructure Bank.

Can you touch on how important that is relative to our credit rating? Canada continues to hold a AAA credit rating, giving us a strategic advantage relative to other major economies. Can you tell us why it's important for Canada to continue to maintain a AAA credit rating and how that helps with market confidence and borrowing costs, as well as supports our plan to build and finance infrastructure and housing?

[Annette Ryan]

It's a very rich question.

I'll start with the aspect of credit ratings, which are integral to our borrowing costs, as raised by your colleague.

It has certainly been a strength of both the Canadian economy and Canadian public finances that we've been able to maintain the AAA rating. It has tangible benefits for us year over year in terms of borrowing costs. This reflects a number of factors that relate to the overall management of the Canadian economy and its many strengths, as you spoke to.

[Vince Gasparro, Liberal, Eglinton—Lawrence, ON]

How much time do I have, Chair?

[The Chair, Conservative, Kelly McCauley]

You're at four minutes, so you have two minutes to go.

[Vince Gasparro, Liberal, Eglinton—Lawrence, ON]

Thank you.

I'd like to drill down a bit on the IMF for a moment.

Going back to real GDP growth, the IMF projects a 1.5% increase in 2026. They recently noted, “Canada’s strong fundamentals...and reliable access to external financing...provide important buffers [for the Canadian economy].”

From your perspective, what factors are supporting Canada's ability to continue growing despite external economic headwinds?

[Annette Ryan]

There are a number of factors that play to Canada's advantage: our natural resources base; our strong, vibrant and educated population; our business environment; and our business culture. There are many underpinnings for continued strength in the Canadian economy, despite the headwinds we face, which are real and undeniable.

I will say that on balance, we generally agree with the forward track that was put out by the Department of Finance in the spring economic update in terms of the Canadian economy. This, in turn, was based on private sector forecasts of how the Canadian economy will develop over the short and medium terms.

I think that track, for both ourselves and the spring economic update, was a bit more constrained than the figures you're citing from the IMF. It essentially reflects the fact that these headwinds—trade, the circumstances in the Middle East and the continuing uncertainty about the global environment generally—have been dampers on the overall business environment, for sure.