Interim Parliamentary Budget Officer Jason Jacques has delivered a sharp critique of the Carney government's accounting practices, finding its definition of capital investments to be "overly expansive" in a report that questions the administration's fiscal transparency.
Questionable Accounting Framework
The controversy stems from the government's decision to divide its spending into operating and capital categories, a move that parliamentary observers predicted would prove contentious. According to the PBO analysis, the government has allocated $94 billion to capital spending that should properly be classified as day-to-day operational expenses.
Jacques noted that the government's new budgetary framework adopts a definition of capital investment that goes beyond both current Canadian public accounting standards and international practices followed by countries like the United Kingdom. The framework includes investment tax credits, subsidies, and corporate income tax spending in its capital budget - expenditures that international standards wouldn't classify as capital formation.
Budget Deficits and Fiscal Projections
The government's recent budget claimed it would balance the operating budget within three years while running deficits to fund $311.5 billion in capital projects. However, the actual deficit nearly doubled projections from the fall economic statement, forcing the Liberals to abandon their traditional debt-to-GDP ratio metric in favor of a deficit-to-GDP scale.
While the Department of Finance projected a falling deficit-to-GDP ratio from 2.5% in 2025/26 to 1.5% in 2029/30, the PBO expressed skepticism about achieving even these modest targets. The budget document had proudly noted that Canada maintains one of only two triple-A credit ratings among G7 nations, but that status now appears threatened.
Credit Rating Concerns
The fallout from what critics call "smart-aleck" accounting behavior emerged quickly. Within days of the budget release, Fitch Ratings - which had previously downgraded Canada to AA+ - warned that the nation's bond rating could deteriorate further due to what it termed "persistent fiscal expansion and a rising debt burden."
The PBO assessment concluded that much of the spending categorized as capital investment would not produce the economic growth and investment returns the government anticipates. This revelation comes as the Carney government faces increasing scrutiny over its fiscal management and accounting practices.
