OTTAWA, October 31, 2025 – Canada’s federal budget deficit has widened significantly in the first five months of the 2025/26 fiscal year, reaching C$11.07 billion ($7.89 billion USD), as government expenditures outpaced revenues, according to a statement from the Finance Ministry on Friday. This marks an increase from the same period in the previous fiscal year, when the deficit stood at C$9.84 billion.

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Rising Government Spending Drives Larger Deficit

The surge in Canada’s budget deficit has been largely attributed to an overall rise in program expenses, which increased by 4.1% compared to last year. The growth in spending spans across all major sectors, including social programs, healthcare, and infrastructure investments.

However, the good news for policymakers is that public debt charges declined slightly, falling by 0.8%, mainly due to lower interest rates on Canadian treasury bills. Despite this reduction, the rise in program expenses has outweighed the savings from reduced debt charges, contributing to the overall widening of the deficit.

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Revenue Growth Partially Offsets Spending Increase

On the revenue side, Canada experienced a modest increase of 2.5% in total revenues for the fiscal year-to-date. This growth was primarily fueled by higher custom import duties, which rose dramatically by 156.9% to C$5.79 billion during the April to August period. The spike in import duties is largely linked to retaliatory tariffs imposed on the United States, highlighting the ongoing impact of international trade tensions on Canada’s fiscal position.

In addition, corporate and personal income tax revenue contributed to the uptick in overall government revenue, partially offsetting the rise in spending. Despite these gains, revenue growth has not kept pace with the rapid increase in expenditures, leading to a wider fiscal gap.

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Monthly Deficit Trends

Breaking down the numbers on a monthly basis, Canada posted a deficit of C$3.28 billion in August 2025, up from C$2.55 billion in August 2024. This monthly increase underscores a trend of persistent deficits, reflecting ongoing structural and cyclical pressures on the Canadian economy.

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Implications for the Canadian Economy

The widening budget deficit comes at a time when the Canadian economy faces multiple challenges, including fluctuating interest rates, global trade uncertainties, and rising inflationary pressures. Policymakers may need to balance economic growth objectives with fiscal sustainability, especially as public debt levels remain a focal point for investors and international observers.

Experts suggest that prudent fiscal management, strategic spending priorities, and measures to boost revenue—such as revisiting trade policies and enhancing tax collection efficiency—will be critical for narrowing future deficits.

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Key Takeaways

• Canada’s budget deficit for the first five months of 2025/26 rose to C$11.07 billion, up from C$9.84 billion a year earlier.
• Program expenses increased by 4.1%, while public debt charges fell by 0.8%.
• Revenue growth of 2.5% was mainly driven by higher custom import duties and increased corporate and personal income taxes.
• Monthly deficits continue to trend higher, with August 2025 posting a C$3.28 billion shortfall.

Canada’s fiscal trajectory in 2025/26 will be closely watched by investors, economists, and policymakers as the government navigates the challenges of balancing growth, trade pressures, and public debt management.