From the Frontier Centre for Public Policy

By Jay Goldberg

Rosy projections, chronic deficits, and opaque budgeting. If nothing changes, Carney’s credibility could collapse under the same weight.

Carney promised a fresh start. His budget makes it look like we’re still stuck with the same old Trudeau playbook

It turns out the Trudeau government really did look at Canada’s economy through rose-coloured glasses. Is the Carney government falling into the same pattern?

New research from the Frontier Centre for Public Policy shows that federal budgets during the Trudeau years “consistently overestimated [Canada’s] fiscal health” when it came to forecasting the state of the nation’s economy and finances over the long term.

In his research, policy analyst Conrad Eder finds that, when looking specifically at projections of where the economy would be four years out, Trudeau-era budgets tended to have forecast errors of four per cent of nominal GDP, or an average of $94.4 billion.

Because budgets were so much more optimistic about long-term growth, they consistently projected that government revenue would grow at a much faster pace. The Trudeau government then made spending commitments, assuming the money would be there. And when the forecasts did not keep up, deficits simply grew.

As Eder writes, “these dramatic discrepancies illustrate how the Trudeau government’s longer-term projections consistently underestimated the persistence of fiscal challenges and overestimated its ability to improve the budgetary balance.”

Eder concludes that politics came into play and influenced how the Trudeau government framed its forecasts. Rather than focusing on the long-term health of Canada’s finances, the Trudeau government was focused on politics. But presenting overly optimistic forecasts has long-term consequences.

“When official projections consistently deviate from actual outcomes, they obscure the scope of deficits, inhibit effective fiscal planning, and mislead policymakers and the public,” Eder writes.

“This disconnect between projected and actual fiscal outcomes undermines the reliability of long-term planning tools and erodes public confidence in the government’s fiscal management.”

The public’s confidence in the Trudeau government’s fiscal management was so low, in fact, that by the end of 2024 the Liberals were polling in the high teens, behind the NDP.

The key to the Liberal Party’s electoral survival became twofold: the “elbows up” rhetoric in response to the Trump administration’s tariffs, and the choice of a new leader who seemed to have significant credibility and was disconnected from the fiscal blunders of the Trudeau years.

Mark Carney was recruited to run for the Liberal leadership as the antidote to Trudeau. His résumé as governor of the Bank of Canada during the Great Recession and his subsequent years leading the Bank of England seemed to offer Canadians the opposite of the fiscal inexperience of the Trudeau years.

These two factors together helped turn around the Liberals’ fortunes and secured the party a fourth straight mandate in April’s elections.

But now Carney has presented a budget of his own, and it too spills a lot of red ink.

This year’s deficit is projected to be a stunning $78.3 billion, and the federal deficit is expected to stay over $50 billion for at least the next four years.

The fiscal picture presented by Finance Minister François-Philippe Champagne was a bleak one.

What remains to be seen is whether the chronic politicking over long-term forecasts that plagued the Trudeau government will continue to be a feature of the Carney regime.

As bad as the deficit figures look now, one has to wonder, given Eder’s research, whether the state of Canada’s finances is even worse than Champagne’s budget lets on.

As Eder says, years of rose-coloured budgeting undermined public trust and misled both policymakers and voters. The question now is whether this approach to the federal budget continues under Carney at the helm.

Budget 2025 significantly revises the economic growth projections found in the 2024 fall economic statement for both 2025 and 2026. However, the forecasts for 2027, 2028 and 2029 were left largely unchanged.

If Eder is right, and the Liberals are overly optimistic when it comes to four-year forecasts, then the 2025 budget should worry Canadians. Why? Because the Carney government did not change the Trudeau government’s 2029 economic projections by even a fraction of a per cent.

In other words, despite the gloomy fiscal numbers found in Budget 2025, the Carney government may still be wearing the same rose-coloured budgeting glasses as the Trudeau government did, at least when it comes to long-range fiscal planning.

If the Carney government wants to have more credibility than the Trudeau government over the long term, it needs to be more transparent about how long-term economic projections are made and be clear about whether the Finance Department’s approach to forecasting has changed with the government. Otherwise, Carney’s fiscal credibility, despite his résumé, may meet the same fate as Trudeau’s.

Jay Goldberg is a fellow with the Frontier Centre for Public Policy.

The Audit

David Clinton

Who in Global Affairs Canada was ultimately responsible for those spending choices and will they be held responsible in the event of program failures?

As I’m sure your eyes have been glued to every scrap of news about the recent COP30 climate conference, I need hardly tell you about Canada’s related $392 million commitment. This, of course, will be part of (or perhaps in addition to) our overall $200 billion investment in the fight against global warming since 2015.

$200 billion, by the way, comes to nearly $5,000 for each man, woman, and child in the country. The yearly interest on the loans that were required to spend that money will cost considerably more. And, as far as we can tell, all that money has so far failed to even slow the rise in global temperatures.

Ok. But who’s getting this particular tranche of $392 million? Well, $263 million of it will go to the International Fund for Agricultural Development (IFAD).

IFAD is a fund, so it doesn’t do anything itself. But in this case, it’s expected to distribute money for projects in the Brazilian Amazon and work with local partners on forest and rural development issues. It’s the local partners who will do the work.

No matter who’s holding the shovels, any rural, agricultural, or environmental operations taking place in, for example, the State of Amazonas will require approval or licensing from the government agency, Instituto de Proteção Ambiental do Amazonas (IPAAM).

And that could be interesting. Because that very same IPAAM, as it happens, has been under Brazilian Federal Police investigation for the past year. In other words, the agency in control of issuing licenses and authorizing the work IFAD wants done, is (allegedly) as crooked as a corkscrew.

Well that certainly gets us off to a great start.

The next $106 million from Canada’s commitment has been directed to Deetken Asset Management’s new Inclusive Climate Action Fund (ICAF). As the name suggests, ICAF is a climate-focused investment fund whose broader strategy includes a “gender lens”. Which is another way of saying that financial success is not the fund’s overriding priority.

Under the best of circumstances, deploying climate-focused financial instruments through small and medium-sized enterprises – especially in emerging markets – is notoriously challenging. Besides all the regular headwinds facing any business startup, initiatives in those parts of the world will routinely face risks related to corruption, criminal gangs, and plenty of currency volatility. Being forced to operate while business solvency is your second or third-tier priority is like swimming across a fast-moving river with your legs tied to a tree.

What’s curious is that the government is doubling down on ESG investments at just the moment in history when ESG failures are hitting their stride. U.S.-based ESG funds faced net outflows of $8.6B in Q1 2025, while fund closures outpaced launches in 2024. Major managers like Vanguard approved no ESG proposals at all in 2024.

Closer to home, Canada Pension Plan Investments scrapped its net-zero emissions commitment “after several Canadian banks left the Net-Zero Banking Alliance earlier this year”. It seems that they felt rigid climate targets could conflict with the Plan’s fiduciary duties to maximize financial returns.

I for one would be curious to know who in Global Affairs Canada was ultimately responsible for those spending choices and whether they’ll be held responsible in the event of program failures. Although, all things considered, I’d be surprised if we ever hear anything at all about where all that money really ended up.

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