07:20 AM EST, 11/05/2025 (MT Newswires) -- Canada's government is projecting its deficit to increase substantially in the 2025-26 fiscal year (FY26), widening to $78.3 billion from $36.3 bilion last year, said Desjardins after Tuesday's release of the 2025 budget

That's $36.1 billion larger than planned in the Fall Economic Statement (FES) 2024. Deficits are expected to be smaller after but to remain substantially larger than previously projected, noted the bank.

Spending is the primary culprit behind the larger deficits, with program spending topping previous forecasts, stated Desjarins. Defense is the largest contributor, although increased investment in infrastructure and housing, as well as measures to support tariff-impacted industries, also played a roll.

This increase came in spite of expected savings from a comprehensive expenditure review, which, at $60 billion over five years, fell short of expectations.

Revenue measures to boost investment also helped to expand the deficit, but these were a welcome change in direction from the past, pointed out the bank. However, these too fell short of the ambitious expectations the government built up before Budget Day.

Many of these were previously announced, leaving the Productivity Super-Deduction ($1.5 billion) as the latest revenue announcement. Combining tax cuts with the weaker outlook for the economy and labor market has put revenues on a downward trajectory as a share of GDP -- a very different path from the FES 2024, it added.

As a result of larger deficits and a softer outlook for nominal GDP, the federal debt-to-GDP ratio is expected to rise over the next couple of years before stabilizing and then tracking lower. However, declining debt as a share of economic activity is no longer a fiscal anchor for the government, according to Desjardins.

Neither are debt servicing costs, as measured by public debt changes as a share of revenues, which is also expected to rise over the outlook. Instead, falling deficits as a share of GDP are one of the federal government's new fiscal anchors, and the budget checks that box.

The same is true for the "operating balance", which is expected to return to surplus within three years, so meeting the second of the new fiscal anchors. That said, the bank anticipates rating agencies will be satisfied that the fiscal forecast was in line with expectations, and that a debt downgrade is unlikely in the near term as Canada continues to have one of the best fiscal positions among advanced economies.