Canada’s Fiscal Picture Is “Cloudy,” Deficit May Hit $80 Billion: BMO

Canada’s financial outlook is looking uncertain, according to BMO (Bank of Montreal). The bank warns that the government’s missing post-election budget has made the fiscal picture “cloudy.” Without clear spending and revenue plans, it’s hard to know exactly where things stand.

BMO’s senior economist, Robert Kavcic, says two commonly cited numbers—the Parliamentary Budget Officer’s estimate of a $46.8-billion deficit, and the Liberal Party’s own platform projection of $62.3 billion—are likely too low. He believes these figures don’t reflect the true risks now facing Canada’s finances.

Platform-promised tax cuts and spending relief measures are further hurting revenue estimates. These include a personal income tax cut, cancelling an increase in capital gains taxes, and providing GST relief on certain new home purchases. These moves reduce what the government collects.

A key revenue source that now looks weaker is counter-tariffs. The government had expected to collect about $20 billion from retaliatory tariffs. But as trade tensions ease, BMO expects the actual revenue to be 50–75 per cent lower than planned. In addition, dropping the digital services tax may cost another $7 billion.

On the spending side, costs are going up as well. BMO points out that boosting NATO spending to 2 per cent of GDP now—and reaching 5 per cent by 2035—could add about $8 billion to this year’s deficit. That’s a big surprise compared to earlier forecasts.

Taken together, the shortfall could climb to as high as $80 billion—nearly 2.5 per cent of Canada’s GDP. That’s much worse than the roughly $48 billion that was expected for the 2024–25 fiscal year. With both revenues falling short and spending rising, the outlook remains fragile.