OTTAWA — Canada’s federal budget deficit reached C$7.79 billion (roughly $5.59 billion USD) in the first four months of the 2025/26 fiscal year, according to finance ministry data released Friday. That’s moderately worse than the C$7.30 billion shortfall recorded during the same April-to-July stretch last year.
The gap isn’t dramatic, but it points to a persistent problem: the government keeps spending more than it brings in, and there’s no quick fix in sight.
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Spending Up Across the Board
Program expenses climbed 3% during the period, with increases showing up in virtually every category of government spending. Whether it’s healthcare transfers, infrastructure projects, or social programs, the bills keep growing.
There was one exception. Public debt charges—essentially the interest the government pays on money it’s already borrowed—actually fell by 0.7%. That’s thanks to lower interest rates, which make it cheaper to service existing debt. It’s a small silver lining, but at least Ottawa is catching a break somewhere.
The Tariff Money Pouring In
On the revenue side, things are more complicated. Overall, the government collected 1.6% more money than it did a year ago, driven mainly by personal and corporate income taxes. But here’s where it gets interesting: customs import duties jumped 162.4% to C$4.66 billion.
That massive spike isn’t because Canadians suddenly went on an import shopping spree. It’s because Canada slapped retaliatory tariffs on U.S. goods amid ongoing trade friction between the two countries. When governments get into tariff wars, they collect more at the border—but everyone else tends to pay the price through higher costs and economic uncertainty.
So yes, the federal coffers are getting a boost from these duties, but it’s hardly something to celebrate. Trade disputes rarely end well for anyone involved, and what looks like extra revenue today could mean slower economic growth tomorrow.
July Was Actually Decent
If there’s any good news here, it’s that July itself wasn’t terrible. Canada posted a C$1.51 billion deficit for the month, considerably better than the C$4.41 billion hole from July 2024. Monthly numbers bounce around a lot, so you can’t read too much into any single data point. But it at least suggests the government had a reasonably strong month, either from better-than-expected tax collections or more controlled spending.
Still, one decent month doesn’t erase four months of deficit growth.
The Bigger Picture Isn’t Great
Look, nobody expects governments to balance their budgets every single year. Deficits happen, especially when you’re investing in things that matter or dealing with economic headwinds. But nearly C$8 billion in the red after just four months puts Canada on pace for a substantial annual shortfall unless something changes.
The problem is that changing course isn’t easy. You can’t just slash spending without consequences, and you can’t magically boost tax revenue without strong economic growth—which remains shaky. Lower interest rates are helping keep debt costs manageable for now, but who knows how long that lasts?
Finance Minister Chrystia Freeland and her team have some tough calls ahead. They need to keep essential programs running and support the economy without letting the deficit balloon into something that spooks markets or credit rating agencies. Based on these first four months, that balancing act isn’t getting any simpler. The numbers are moving in the wrong direction, even if only slightly, and there’s not much room for error.