In its 2020 and 2021 budgets and updates, the Canadian government frequently mentioned 'fiscal guardrails,' a term that was met with significant criticism. Hard targets like a balanced budget or a dollar reduction in total spending provide clear commitments for which a government can be held accountable—something governments usually prefer to avoid. A 'guardrail' is vaguer, implying safety even if the driver is careless. Further criticism followed when it became clear that if Ottawa wanted to spend more than the guardrail allowed, it simply bypassed it, borrowing and spending as it pleased.
Current Guardrail Pushes Toward Fiscal Cliff
Now, the government's spring update reveals that it has adopted a guardrail that will actually keep us off the safe road and push us toward the fiscal cliff. Over-spending and over-borrowing are already undermining living standards and raising the risk of a crisis. When a significant upside revenue surprise—such as the one for the fiscal year ending in March—gives the government a chance to steer back to safety, Ottawa instead uses it to hike spending. A guardrail like this ensures we remain perpetually off-road and in fiscal danger.
Although the update repeatedly uses the phrase 'Canada's new government,' it reveals that the new government is still plagued by an old problem. In a pattern that has persisted since the 'fiscal guardrails' concept emerged early this decade, its projections show higher spending than its predecessors. As recently as the 2022 budget, spending in the current fiscal year, 2026-27, was projected at $504 billion. However, the update now projects it at $595 billion—more than $90 billion higher in just four years. Consequently, the deficit remains well above $50 billion through 2030-31, while the ratio of net federal debt to GDP stays above 40% throughout the projection period. This occurs at a time when, as the update continually claims, the economy is performing better than expected—meaning deficits should be shrinking and the debt burden falling.
Spending Every Extra Revenue Dollar
The new guardrail currently guiding federal fiscal policy appears to be: take every extra revenue dollar that comes in today as a license to spend an additional revenue dollar tomorrow, and the next day, and the day after that, and so on forever. This approach does not pull Canada back from the edge; it keeps pushing us to the wrong side of safety, where disappointing growth (a risk the update acknowledges) or higher interest rates (a possibility it should have discussed more) can send us off the cliff.
The spring update is further evidence that federal fiscal policy continues to be driven by spending rather than a disciplined long-term framework. Eroding living standards and the threat of a fiscal crisis will persist until the government adopts something Canadians have not seen in many years: a serious commitment to a balanced budget and the spending discipline needed to achieve it.
Even good fiscal guardrails would not be sufficient, and the current implicit guardrail—to spend every extra revenue dollar—is actively harmful. This fall's budget needs a credible path back to budget balance. Without a target that truly constrains spending and holds the government accountable, Canada will continue to drive dangerously close to a fiscal cliff.
Don Drummond, a Stauffer-Dunning fellow at Queen's University, is a fellow-in-residence at the C.D. Howe Institute, where William Robson is president emeritus and Nicholas Dahir a research officer.
