07:10 AM EDT, 07/08/2025 (MT Newswires) -- Bank of Montreal (BMO) noted how the wave of platform fiscal stimulus and higher defense spending targets are going to drive Canada deeper into deficit.

Among the various potential softeners are enhanced

government productivity and cuts across non-priority areas, said the bank.

The word on Monday was that the federal government will begin to push hard in these areas as soon as the upcoming budget/fiscal update expected in the fall -- reports have suggested a 7.5% cut to program spending and stricter tests for departments to receive new funding, pointed out BMO.

Indeed, broad government program spending has steadily

ratcheted higher since 2016, sitting at roughly 16% of gross domestic product as of FY24/25. During the leaner years -- late-1990s through 2016 -- when Ottawa generally ran non-recession balanced budgets or small surpluses, program spending was relatively stable around 13% of GDP, added the bank.

Now, it's unlikely Canada is going to see spending retrench back to those levels, as cuts will more likely be backfilled with updated policy priorities --preventing a further deficit blowout, according to the bank.

That itself is notable, given the current government's shift in focus to more pro-growth policy and, apparently, a leaner government.