Canada’s Spring Economic Update: The Comforting Numbers Come With a Catch

Canada’s Spring Economic Update (SEU) started with a sprinkle of good news. Revenues were over $11 billion higher than forecast in the fall 2025 budget, reducing the actual deficit last fiscal year to $66.9 billion from $78.3 billion. Much of the revenue windfall resulted from the boom in oil prices. Rather than continue to use increased revenues to reduce projected annual deficits over the next five years, the government decided to use them to ratchet up spending, citing the combined need to support families in the face of rising living costs and “catalyze” investments that grow the economy. 

Canadians may well agree with this borrowing plan, even though it means our debt servicing charges are projected to rise from $54 billion this year to a whopping $81 billion five years from now. But that support should be based on facts and a good understanding of options and consequences. 

Is Canada’s Fiscal Position as Strong as Claimed?

First, the facts. In defending its decision, the government points to Canada’s “strong fiscal position,” citing its lowest net debt-to-GDP ratio among the G7, as reported by the International Monetary Fund (IMF). This is true. The source is the IMF’s April 2026 Fiscal Monitor, which can be fact-checked by all on the internet. The ratios of the G7 countries, including their national and subnational governments, are measured and ranked. Canada’s ratio stands at 10.2%, substantially lower than even second-place Germany at 47.2%.

But are our finances really in that much better shape than the rest of the G7? And are they as rosy as the SEU claims? Start by looking at the government’s preferred metric. Canada’s net debt-to-GDP ratio is prominently reported in each budget and economic update, and sometimes mistakenly shortened in ministerial speaking points to the “debt-to-GDP” ratio. 

Understanding Net Debt and Gross Debt Measures

Government net debt is a narrow measure of debt. It subtracts financial assets from gross debt, the broader measure that includes all liabilities requiring future payment of interest or repayment of capital by the debtor to the creditor. The rationale for considering net debt is that, in theory, financial assets could be used to pay back debt, should the need arise.

For comparative purposes, the ratios and rankings across most G7 countries track fairly closely, whether using gross debt or net debt. Not so for Canada. A major reason is that Canada’s net debt is reduced by substantial surpluses in the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP). These began accruing in the 1990s when the federal government and nine participating provinces increased the CPP contribution rate to 9.9%, created an investment board and permitted it to invest in a broad range of equities and other investments. A similar investment strategy started much earlier for the QPP fund managed by the Caisse de dépôt et placement du Québec (CDPQ).  

By comparison, government-mandated pension plans of other G7 countries, such as Social Security in the US, do not operate the same way. Excess funds must be invested in government bonds and securities so assets and offsetting liabilities net out, resulting in no change in indebtedness. This argues in favour of using gross debt-to-GDP ratios (which are also tracked by the IMF) for a more accurate “apples to apples” comparison. On that basis, Canada’s ranking falls from first to third (113.5%), behind Germany (62.9%) and the UK (102.3%) and only marginally ahead of France (116.0%). In other words, we fall from first in class to middle of the pack in the G7.

What Canada’s Spring Economic Update Misses

Why restrict the comparison to only seven countries? The IMF tracks net and gross debt-to-GDP ratios for 38 countries with “advanced economies”. Canada retains a respectable 6^th place ranking in terms of our net debt-to-GDP ratio. But using gross debt, our ranking falls drastically to a dismal 32^nd place out of 38. 

A further concern? Governments backstop public debt, but taxpayers must backstop governments. Private debt is much higher in Canada than in other G7 countries, limiting their capacity to pay higher taxes if needed down the road. 

While government debt levels are still “sustainable”, meaning they are not forecast to grow faster than GDP and our ability to repay them, our debt servicing charges are rising quickly – obligations that must be paid before spending on programs that benefit citizens. As the IMF itself states, “High debt, higher interest rates, and persistent spending pressures leave little room for complacency. Countries that rebuild buffers in calm periods will be better placed to protect their citizens when shocks arrive.

The Risks of Selective Economic Reporting

There will be legitimate differences of opinion on whether the government was right to ratchet up spending instead of reducing its projected deficits. But everyone’s opinion should be based on a common understanding of the best available facts and evidence.

The government’s persistent selective reporting of net debt appears more like “policy-based evidence” (selectively choosing evidence that supports a predetermined policy course) rather than “evidence-based policy” (charting a course based on all best available evidence). The government should instead report a wider range of performance indicators with explanations that better inform citizens, and not just cherry-pick the most favourable ones. 

Examining Canada’s Direct Investment Claims

The SEU also lauds Canada’s recent record at attracting direct investment, proclaiming that “Canada Leads the G7 in Direct Investment Inflows Per Capita”, citing the Organisation for Economic Co-operation and Development (OECD) as the source for this statistic.

While the OECD does track foreign direct investment inflows and outflows for 38 countries, including those in the G7 and G20, it does not do so on a per capita basis. In 2025, Canada actually ranked 4^th in the G7 in terms of direct capital inflows, behind the US, UK, and Germany, according to the OECD. So why would the SEU convert this to a per capita metric? Because using this metric improves Canada’s relative ranking to the #1 spot in the G7, since Canada has the lowest population in the G7.     

Building Trust Through Transparent Fiscal Anchors

Since 1994, it has been a best practice of successive federal governments to use the average of private sector economic forecasts for their own economic outlook in budgets and economic updates. An optimistic and pessimistic scenario analysis is also included to reflect how sensitive this baseline economic outlook might be to changes in various underlying conditions and parameters. This is a responsible practice that the IMF endorses, and is one that, in principle, should increase public trust and confidence in the course being charted by the government. This is especially important at a time when the economic headwinds facing the country are so strong amid considerable and growing global risk and uncertainty. 

The government should adopt a similarly transparent and objective approach to the economic performance indicators that it chooses to report. It should, at the same time, include a consistent array of “fiscal anchors” or “guardrails” that it commits to respect in its fiscal plans, to be accountable for and to be judged accordingly on its record. Citizens deserve no less from their governments and their political leaders.