Annex 1: 
Details of economic and fiscal projections

Economic projections

The average of private sector forecasts has been used as the basis for economic and fiscal planning since 1994. This helps ensure objectivity and transparency and introduces an element of independence into the government's economic and fiscal forecast. The economic forecast reported here is based on a survey conducted in September 2026.

The September survey includes the views of 13 private sector institutions:

• BMO Capital Markets
• Capital Economics Canada
• CIBC World Markets
• Deloitte Canada
• Desjardins
• Industrial Alliance Insurance and Financial Services Inc.
• Laurentian Bank Securities
• Manulife Canada
• National Bank Financial Markets
• Royal Bank of Canada
• Scotiabank
• Signal49 Research
• TD Bank Financial Group

Reflecting the resilience of the Canadian economy despite an increasingly challenging global environment, the private sector outlook for real gross domestic product (GDP) growth remains broadly in line with the Spring Economic Update 2026 (SEU 2026) (Table A1.2). Latest U.S. trade actions are expected to weigh on growth in the near term, while stronger business investment and productivity growth contribute to a modestly stronger outlook over the medium term.

In the September survey, private sector forecasters generally assumed that tariffs and elevated trade policy uncertainty would persist throughout the forecast horizon, although views differed on the timing and extent of any de-escalation. Overall, forecasters assumed some easing from current tariff conditions but did not anticipate there would be a return to the broadly open, low-tariff environment that prevailed in previous decades. Among forecasters that quantified the macroeconomic impacts, latest U.S. tariffs and related trade actions were estimated to reduce Canadian real GDP growth by about 0.3 percentage points in both 2026 and 2027 on average, with little additional drag on annual growth thereafter.

Beyond the trade outlook, forecasters revised up their oil price assumptions for 2026 through 2028, compared to the SEU forecast, reflecting a more prolonged conflict in the Middle East. Forecasters also expected continued AI adoption to support productivity and growth, with those providing quantitative estimates expecting an average contribution of about 0.2 percentage points annually to real GDP growth. New investment incentives, including the Productivity Mega Deduction, were expected to provide a further potential source of support to business investment and the medium-term growth outlook. Given the early stage of these measures, their potential impact on investment may not yet be fully reflected in private sector forecasts.

Comparisons of the September survey real GDP growth forecast to that of other institutions are presented in Table A1.1. For 2026 and 2027, the September survey falls within the range of other forecasts. For 2028 and 2029, the September survey is slightly stronger than some available forecasts.

Looking more closely at the September survey, forecasters expected growth to moderate in the second half of 2026 following a strong second quarter. After annualised real GDP growth of 3.3% in the second quarter of 2026, growth of 1.6% was expected in the third quarter as temporary factors unwind, before easing further to 1.3% in the fourth quarter as new U.S. tariffs weigh on affected sectors. Despite these headwinds, resilient domestic demand and strong energy exports were expected to continue supporting activity. Household consumption was expected to remain firm, supported by stable labour market conditions, solid income growth, and household financial buffers. Business investment also strengthened and was expected to remain solid, supported in part by the Productivity Mega Deduction.

Overall, private sector forecasters expected real GDP growth of 1% in 2026, in line with the SEU 2026, and 1.7% in 2027, slightly below the SEU forecast. Measured on a
fourth-quarter-over-fourth-quarter basis, growth was somewhat stronger, at 1.6% in 2026 and 1.8% in 2027, pointing to greater underlying momentum than annual averages suggest. Growth was expected to be modestly stronger later in the forecast, reaching 2% in 2028 and 2029. By the end of 2030, the economy was expected to be 0.1% higher than projected in the SEU 2026 despite additional headwinds from energy cost pressures and new U.S. tariffs.

The unemployment rate was expected to average 6.5% in the third quarter of 2026, after reaching 6.7% in the second quarter. It was then expected to decline gradually over the forecast horizon, reaching 5.8% in 2030. Over 2026 to 2030, the unemployment rate averages 6.1%, slightly below the 6.2% projected in the SEU 2026.

West Texas Intermediate (WTI) crude oil prices were expected to average US$85 per barrel in 2026, up from US$73 in the SEU 2026, before falling to US$69 in 2030, broadly in line with the SEU 2026 by the end of the forecast period. Forecasters generally expected the effects of higher oil prices to be concentrated primarily on inflation and nominal income, with more limited impacts on real activity and the labour market. 

Reflecting higher oil prices, private sector economists also revised up their near-term outlook for Consumer Price Index (CPI) inflation. CPI inflation was expected to remain above or near the top end of the target range until the second quarter of 2027 and to average 2.8% in 2026 and 2.2% in 2027, 0.3 percentage points higher than projected in the SEU 2026 in both years. Forecasters expected modest spillovers from higher energy prices, with core inflation increasing from 2.1% in 2026 to 2.3% in 2027.

Against this backdrop, forecasters expected the Bank of Canada to raise its policy rate by two 25-basis-point over the next year and hold it broadly steady thereafter. Consistent with this outlook, the 3-month Treasury bill was expected to average 2.3% in 2026 and 2.6% in 2027, before settling at 2.7%, about 10 basis points higher than forecast in the SEU 2026. The 10-year Government of Canada bond rate was revised up slightly from the SEU 2026, averaging 3.6% in 2026 and 3.8% in 2027, both about 20 basis points higher than the SEU 2026, before settling around 3.7% over the remainder of the forecast horizon.

At the time of the September survey, forecasters expected real GDP growth in the U.S. to strengthen in the second half of 2026, at annualised rates of 2.7% and 2.3% in the third and fourth quarters, respectively. U.S. growth came in higher than expected in the third quarter at 3.4%. Annual growth was expected to be 2.1% in 2026, 0.3 percentage points below the SEU 2026. Growth was then expected to strengthen, reaching 2.3% by 2030, supported in part by ongoing investments in artificial intelligence infrastructure and related technologies. From 2027 to 2030, growth in the U.S. was expected to be 0.2 to 0.3 percentage points stronger than was expected in the SEU 2026. With growth running near or above potential, inflation pressures elevated, and labour market conditions solid, forecasters expected the Federal Reserve to start a new cycle of policy rate increases.

The September survey points to a substantially higher level of nominal GDP than in the SEU 2026, reflecting higher GDP inflation, supported by commodity prices, as well as by stronger real GDP outlook over the medium-term. Higher oil prices and domestic price pressures lifted GDP inflation to an average of 4.6% in 2026, compared with 3.1% in the SEU 2026, while the strong rebound in real GDP growth in the second quarter provided an additional near-term boost. Nominal GDP growth was forecast to be 5.6% in 2026, up from 4.1% in the SEU 2026. Relative to the SEU 2026, the level of nominal GDP is $48 billion higher in 2026 and averages $48 billion higher per year over 2026 to 2030, compared to the SEU 2026.

Forecasters continued to see significant risks on both sides of the outlook. Downside risks are concentrated around external developments, particularly a further deterioration in the trade environment and a more persistent global oil price shock, either of which could weigh more heavily on growth than assumed in the baseline. Upside risks are more domestically oriented, centred on the potential for stronger business investment and productivity growth. Investment could be stronger than expected if major projects proceed more rapidly, new investment incentives generate a larger-than-expected response, or AI adoption leads to stronger productivity gains. An easing in trade uncertainty could provide additional support. Given the timing of the September survey, the private sector forecasts did not incorporate new measures introduced in Budget 2026 and may not fully reflect the Productivity Mega Deduction, providing additional potential upside to investment and growth.

Since the September survey was completed, developments in energy markets have been stronger and more persistent than anticipated, pointing to a stronger near-term outlook for oil prices. WTI crude oil prices have been trading around US$100 per barrel, well above the levels anticipated in the September survey, reflecting ongoing geopolitical tensions and concerns about global oil supply. These developments suggest WTI prices could average about US$87 per barrel in 2026 and US$89 per barrel in 2027. Higher energy prices add to inflationary pressures, while also raising the value of Canada's energy exports and profitability in the energy sector.

Increased global inflationary pressures, along with concerns about fiscal sustainability for some major economies, have also contributed to long-term bond yields evolving somewhat higher than expected, although they have moderated since the beginning of October. Concerned about higher energy prices spreading more broadly to other consumer prices, the Bank of Canada has also since raised its policy rate by 25 basis points in October, earlier than expected in the September survey. Despite some moderation over the summer, economic activity has held on to much of the strength seen in the second quarter, with recent indicators pointing to solid growth overall in the third quarter.

Taken together, higher energy prices and stronger-than-expected economic momentum point to some potential improvement in the nominal GDP outlook relative to the September survey. The survey nevertheless remains a prudent baseline for economic and fiscal planning amid ongoing uncertainty.

To support prudent economic and fiscal planning, the Department of Finance Canada has developed scenarios to assess the potential implications of these risks for the economic and fiscal outlook (see below for details).

Enhancing the private sector survey framework

As part of a review of the private sector survey framework underpinning its economic and fiscal outlook, the government has expanded the survey from 10 to 13 participating organisations. The expansion is intended to strengthen the breadth and long-term stability of the forecasting process by incorporating a broader range of private sector perspectives, while maintaining the transparent and structured approach that underpins the government's economic and fiscal planning.  

New participants were assessed against four criteria: 

• Credibility and expertise: An established producer of Canadian macroeconomic forecasts with demonstrated knowledge of Canadian economic conditions. 
• Operational readiness: The ability to consistently provide timely, complete, and comparable forecast submissions across the variables and horizons required for the survey. 
• Institutional continuity: The capacity for sustained participation in the survey and ongoing commitment to producing Canadian forecasts. 
• Survey representativeness: A contribution to maintaining a balanced and diverse range of perspectives within the survey. 

Following this assessment, Deloitte Canada, Capital Economics Canada, and Manulife Canada were added to the private sector survey. Their inclusion broadens the range of macroeconomic, policy, and financial market perspectives informing the government's economic outlook. 

Table A1.3 compares the September 2026 survey results with those obtained when the three new participants are excluded. The impact on the economic outlook is very small. This indicates that expanding the survey has broadened its coverage without materially affecting the economic assumptions underlying Budget 2026.

Table A1.3
Average private sector forecasts
%, unless otherwise indicated

	2026	2027	2028	2029	2030	2026- 2030
Real GDP growth
September 2026 Survey	1.0	1.7	2.0	2.0	1.9	1.7
September 2026 Survey (excl. 3 new forecasters)	1.0	1.8	1.9	1.9	1.9	1.7
GDP inflation
September 2026 Survey	4.6	1.9	1.6	1.9	1.9	2.4
September 2026 Survey (excl. 3 new forecasters)	4.5	1.9	1.7	1.9	1.9	2.4
Nominal GDP growth
September 2026 Survey	5.6	3.7	3.6	3.9	3.9	4.1
September 2026 Survey (excl. 3 new forecasters)	5.5	3.7	3.6	3.8	3.9	4.1
Nominal GDP level (billions of dollars)
September 2026 Survey	3,427	3,552	3,681	3,826	3,975
September 2026 Survey (excl. 3 new forecasters)	3,425	3,552	3,682	3,823	3,970
Impact of 3 new forecasters in the survey	2	0	0	3	5	2
Note: Forecast averages may not equal average of years due to rounding. Numbers may not add up due to rounding. Source: Department of Finance September 2026 survey of private sector economists.

Fiscal projections

The fiscal outlook presented in this budget is based on the economic projections from the September 2026 survey of private sector forecasters, detailed in the previous section.

The projections across this annex are consistent with the Government of Canada's accounting policies, aligning with the Public Accounts of Canada and Canadian public sector accounting standards. In addition, the budget includes an outlook for capital investments, where presentations are specifically indicated to be in accordance with the government's Capital Budgeting Framework, detailed in Budget 2025, Annex 2.

Changes to fiscal projections since the Spring Economic Update 2026

This section presents changes to the fiscal outlook since the SEU 2026. Table A1.4 provides an overview of all sources of change in the budgetary balance. Subsequent tables provide details on the outlook for capital investments and the day-to-day operating balance (Tables A1.5 and A1.6), as well as economic and fiscal developments including, for example, year-to-date financial results (Table A1.7).

Trade uncertainty continues to affect businesses, workers, and communities. As the economy adjusts, real GDP growth was expected to moderate in the second half of 2026, then strengthen in 2027. Against this backdrop, Budget 2026 makes targeted, high-impact investments to build strength at home while maintaining a disciplined fiscal approach. More than one third of the government's actions are aimed at making life more affordable for Canadians and strengthening Canada's sovereignty (Chart A1.1), while two thirds of Budget 2026 measures will help support growth, productivity, and long-term economic resilience. Budget 2026 also respects the fiscal anchors laid out in Budget 2025: the deficit-to-GDP ratio is projected to decline over the budget planning horizon, and day-to-day operating spending is on track to be balanced by revenues by 2027-28, one year ahead of the target set in Budget 2025.

As shown in Table A1.4, the fiscal outlook remains stronger than projected in the Spring Economic Update 2026, even after accounting for new measures in Budget 2026. The deficit-to-GDP ratio is projected to decline over the planning horizon, while Canada's fiscal position remains among the strongest in the G7. This responsible fiscal management preserves Canada's fiscal advantage while providing room for targeted investments that support long-term economic growth and resilience.

Capital investment outlook

Through the Capital Budgeting Framework, detailed in Budget 2025, the government is prioritising spending that supports capital formation and crowds in private sector investment for long-term growth. This framework provides a consistent way to classify spending (including tax expenditures) as either capital investment, which contributes to capital formation, or day-to-day operating spending.

Table A1.5 shows capital investments are projected to more than double from $37.4 billion in 2025-26 to $78.2 billion in 2030-31. A significant share of the increase over the forecast horizon reflects the fiscal cost of the Productivity Mega Deduction. This increase is partly offset by downward revisions to previously announced capital investments, largely reflecting revised costing for clean economy investment tax credits, lower battery manufacturing supports resulting from revised production schedules, and lower capital amortisation expenses.

Table A1.6 shows day-to-day operating spending is projected to be balanced by revenues from 2027-28 onward, a year ahead of the fiscal anchor commitment announced in Budget 2025. The operating balance is calculated using forecasted budgetary revenues plus estimates of forgone revenue from tax measures that support capital formation, ensuring capital investments are treated consistently under the framework regardless of whether they are delivered through direct spending or the tax system.

Economic and fiscal developments since the Spring Economic Update 2026

Table A1.7 shows how much of the change in the budgetary balance since the SEU 2026 is driven by economic and fiscal developments. This table does not include policy actions and measures introduced since the SEU 2026.

The fiscal outlook has strengthened considerably since the SEU 2026, with roughly 70% of the improvement stemming from stronger revenues and 30% driven by lower expenses. These improvements are driven by stronger-than-expected preliminary 2025-26 fiscal results that increase the revenue base going forward, a stronger private-sector economic outlook that lifts projected tax revenues, and lower expected program expenses, largely reflecting lower direct program expenses. Budget 2026 reduces projected direct program expenses by about 4.5%, or roughly $12.4 billion per year on average over the forecast horizon, before new measures. This adjustment better aligns the forecast with the expected timing and level of spending, informed by recent financial results and updated spending plans.

Together, these developments result in a materially improved budgetary balance across the forecast horizon. At the same time, the forecast continues to reflect the shifting of the composition of federal spending over time toward capital investment and away from day-to-day operating spending, and savings from the Comprehensive Expenditure Review, which help slow the growth of day-to-day operating spending.

Budgetary revenue projections have increased relative to the SEU 2026 by an average of $23.9 billion annually from 2026-27 to 2030-31. Higher prices, mainly for oil, and the second-quarter rebound in economic activity have lifted projected corporate profits and wages compared with the SEU 2026. These higher incomes support an increase in projected income tax revenues. In addition, higher Goods and Services Tax revenue and other revenues also contribute materially to the stronger outlook over the forecast horizon.

The outlook for income tax revenues improved by $15.7 billion annually, on average. The strength is driven by higher‑than‑expected preliminary 2025-26 results, some of which is projected to be sustained across the horizon, as well as a stronger outlook for nominal GDP, supported by upward revisions to the outlook for corporate profits and wages and salaries relative to the SEU. These factors improve projections for both personal and corporate income tax revenues.

The outlook for excise taxes and duties has been revised up over the forecast horizon owing to higher projected Goods and Services Tax revenue supported by a stronger outlook for taxable consumption. For projection purposes, it is also assumed that Canadian countermeasures in response to U.S. tariffs remain in place into 2027-28.

Revenues generated from Employment Insurance (EI) premiums are projected to be higher in 2026-27, mostly driven by growth in insurable earnings. Over the remainder of the horizon, premium revenues are projected to be lower by $0.5 billion annually on average, due to a lower forecasted premium rate, before new measures introduced in this budget.

Other revenues have increased over the forecast horizon primarily due to higher expected interest and penalty revenue in the near-term from growth in outstanding taxes receivable. Other revenue streams, including revenues from enterprise Crown corporations, net foreign exchange revenues, and returns on investments, also contribute to the increase over the forecast horizon.

The outlook for program expenses has decreased relative to the SEU 2026 by an average of $10.3 billion per year from 2026-27 to 2030-31, largely reflecting lower direct program expenses from updated projections for existing spending and actuarial and discount rate impacts on employee future benefit current service costs, partially offset by higher major transfers from indexation to inflation.

The outlook for major transfers to persons and to provinces, territories, and municipalities has increased relative to the SEU 2026 by an average of $1.3 billion per year from 2026-27 to 2030-31, largely due to indexation of select initiatives to inflation and nominal GDP.

Major transfers to persons are projected to increase over the forecast horizon, driven by growth in the Old Age Security program^{Footnote 1} and Canada Child Benefit payments reflecting stronger projected CPI inflation, to which the benefits are indexed. Employment Insurance benefits are anticipated to be lower than forecast in the SEU 2026 as a result of a lower number of beneficiaries driven by a lower unemployment rate forecast.

Major transfers to provinces, territories, and municipalities have increased slightly relative to the SEU 2026. This is primarily due to higher nominal GDP in the outer years of the forecast, which results in upward revisions to Equalization and Canada Health Transfer payments, partially offset by higher recoveries under the Quebec Abatement. Projected payments of Territorial Formula Financing are also higher, driven primarily by population growth.

The outlook for direct program expenses has decreased relative to the SEU 2026 by an average of $12.4 billion per year from 2026-27 to 2030-31, largely reflecting updated projections for existing spending (See box: Updating the direct program expense forecast) and actuarial and discount rate impacts on employee future benefit current service costs.

The reduction in projected direct program expenses mainly reflects updated timing and take-up across a broad range of existing spending, which reduces expected day-to-day spending, as well as certain capital investments including support for battery manufacturing and capital amortisation expense.

Direct program expenses are also down due to an expected rise in interest rates used to measure the present value of current service costs of employee future benefits. These changes are broadly offset by corresponding accrual expenses reported outside of direct program expenses, in public debt charges and net actuarial losses and gains.

An increase in projected expenses across the horizon has been made for the allowance for doubtful accounts on taxes receivable, in line with the increases seen in preliminary 2025-26 results, reflecting the growth of the tax base as well as the aging of the associated receivable. Under Canadian public sector accounting standards, tax revenue is recorded as revenue in the year it is earned, while the provision for doubtful accounts (updated annually to reflect the best estimate of uncollectable amounts receivable) is charged to expenses.

Public debt charges have increased by an average of $2.5 billion per year from 2026-27 to 2030-31 due to higher projected interest rates, as indicated in the survey of private sector economists, as well as higher borrowing requirements.

The reduction in projected spending growth is also supported by savings from the Comprehensive Expenditure Review and a reprioritisation of federal spending toward capital investment and away from day-to-day operating spending.

Net actuarial losses and gains represent the amortisation of changes in the value of the government's accrued obligations for pensions and other employee future benefits and pension fund assets. In the later years of the forecast, net actuarial gains are expected to be lower relative to the SEU 2026, reflecting updated actuarial assumptions.

Updating the direct program expense forecast

The Department of Finance Canada regularly reviews and updates its forecast models. Aligned with this best practice, Budget 2026 incorporates updates to the direct program expense forecast to better reflect the scale and composition of federal spending and the best available information on when approved funding is expected to be spent.

What are direct program expenses?

Direct program expenses comprise transfer payments administered by federal departments and the operating and other expenses of departments, agencies, and Crown corporations. They include both day-to-day expenses and a significant share of federal capital investment expenses.

Why was the forecast updated?

Direct program expenses have increased from about $150 billion in 2019-20 to $242 billion in 2025-26. This larger spending base also contains a wider range of programs and financial arrangements with differing cash and accrual accounting treatments, creating uncertainty in the timing and amount of expenses recorded.

Recent experience during and since the COVID-19 pandemic has also shown that the timing of spending can differ from earlier assumptions as organisations update delivery plans and corporate plans, expenditure reviews are implemented, and economic or financial conditions evolve. Preliminary results for 2025-26 showing considerably lower expenses than foreseen reinforced the need to reassess the aggregate spending profile across the forecast horizon.

What the update means

As a result, Budget 2026 reduces projected direct program expenses by about 4.5% or approximately $12.4 billion per year over the forecast horizon, before new measures. This is an aggregate forecasting adjustment, largely for non-defence, non-capital investments. It is not attributed to particular departments, programs, or policy decisions, and it does not change approved funding. Rather, it aligns the fiscal forecast with the government's best current assessment of the timing and level of expected expenses on an accrual accounting basis.

The forecast will continue to be updated as new information becomes available, including departmental spending plans, in-year financial results, and revised economic and financial assumptions.

Summary statement of transactions

Outlook for budgetary revenues

Table A1.9 provides projected budgetary revenues by major component in the fiscal framework.

Income tax revenues

Income tax revenues are projected to increase by 2.6% to $376.1 billion in 2026-27. Growth in income tax revenues in 2026-27 is supported by upward revisions to nominal GDP, the broadest measure of the tax base, driven by higher oil prices.

Personal income tax revenues are projected to increase by 4.4% to $258.7 billion in 2026-27, reflecting a partial carry-forward of strong preliminary 2025-26 results and growth to date in 2026-27, alongside resilience of the labour market, including strong growth in wages and salaries, and elevated investment income. Over the remainder of the forecast horizon, personal income tax revenue growth is projected to average 4.6% per year.

Corporate income tax revenues are forecast to decrease by 1.5% to $102.7 billion in 2026-27, as the introduction of the Productivity Mega Deduction and weakness in year-to-date results more than offset expected strength in corporate profits and the carry-forward of strength from preliminary 2025-26 results. This new measure will permanently allow immediate expensing for a broad range of depreciable property. This shift in the timing of deductions is projected to lower revenues over the remainder of the forecast horizon.

Income taxes paid by non-residents on Canadian-sourced income, notably dividends and interest payments, are expected to grow by 2% to $14.8 billion in 2026-27, reflecting moderate strength in year-to-date revenues. Over the remainder of the forecast horizon, growth in non-resident income tax revenues is expected to average 1.6% per year, reflecting a slowdown in interest and dividend payments to non-residents.

Excise tax and duty revenues

Goods and Services Tax (GST) revenues are projected to decline by 0.6% to $51.5 billion in 2026-27, reflecting the impact of the Canada Groceries Essentials Benefit top-up payments. Over the remainder of the forecast period, GST revenues are expected to increase by an average of 6.0% per year, supported by growth in taxable consumption and a rebound in revenues as the temporary impact of the top-up payments unwinds.

Customs import duties are forecast to increase by 7.8% to $11.1 billion in 2026-27. This growth primarily reflects, as of September 8, 2026, the application of new Canadian counter tariffs and the increase in the tariff rate of certain existing counter tariffs in response to the U.S. tariffs. Forecast revenues from these countermeasures are net of estimated remissions and other relief (e.g., Duty Deferral Program). For projection purposes, countermeasures are assumed to remain in place into 2027-28 and are subject to change in response to potential trade policy developments.

Other excise taxes and duties are expected to decline to $7.7 billion in 2026-27, or by 41.2%, largely driven by lower motive fuel revenues reflecting the Temporary Federal Fuel Excise Tax Relief measure and its extension. Revenues are projected to recover in 2027-28 as fuel excise tax rates return to their legislated levels and to stabilise at approximately $13 billion over the remainder of the forecast horizon.

Other taxes represent revenues from the Pillar Two global minimum tax, agreed to in October 2021 by the members of the OECD/G20 Inclusive Framework. Revenues from these taxes are projected to be $2.7 billion in 2026-27 and then $2 billion on average annually from 2027-28 to 2030-31.

Employment Insurance premium revenues

Employment Insurance (EI) premium revenues are forecasted to increase by 5.6% in 2026-27, supported by stronger wage and insurable earnings growth. Over the remainder of the forecast horizon, EI premium revenues are projected to grow by an average of 3.7% annually, reflecting steady gains in insurable earnings and labour force participation trends embedded in the economic outlook.

In addition to economic drivers, the EI operating account is impacted by policy measures introduced to support workers like supporting Canadian workers and businesses - the rapid response supports for workers and employers, launching Team Canada Strong, helping workers build skills for the jobs of tomorrow, and helping workers affected by tariffs gain new skills, detailed in Chapter 2 and Chapter 3. These measures are expected to result in $3.9 billion in incremental costs over five years, placing upward pressure on the EI premium rate and influencing the pace at which the account is balanced.

The EI operating account^{Footnote 2} is expected to start recording annual surpluses in 2028 and to achieve cumulative balance in 2034.

On September 14, 2026, the Canada Employment Insurance Commission announced the EI premium rate for 2027 is $1.64. It is projected to decline to $1.63 per $100 of insurable earnings in 2028. The actual premium rate for 2028 will be set in the fall of 2027, incorporating the recommendation of the Commission based on projections provided by the Office of the Chief Actuary.

Other revenues

Other revenues consist of three broad components:

Enterprise Crown corporation revenues are projected to decrease by 0.7% to $13.0 billion in 2026-27, before growing an average of 19.0% per year over the remainder of the forecast horizon, driven by net profits of enterprise Crown corporations as well as increased revenues from growth in the Government of Canada's holdings of Canada Mortgage Bonds.

Other program revenues are projected to increase by 12.5% to $37.0 billion in 2026-27. This is primarily driven by higher expected interest and penalty revenue, reflecting year-to-date growth in outstanding taxes receivable, alongside higher expected offshore oil revenues. Over the remainder of the forecast horizon, growth is projected to average 2.3% annually.

Net foreign exchange revenues and return on investments, which consist mainly of returns on Canada's official international reserves held in the Exchange Fund Account, are volatile and sensitive to fluctuations in foreign exchange rates and foreign interest rates. Assets in the Exchange Fund Account are mainly invested in debt securities of sovereigns and their agencies. They are held to aid in the control and protection of the external value of the Canadian dollar and to provide a source of liquidity for the government, if required. Net foreign exchange revenues and return on investments are projected to rise 9.9% to $6.9 billion in 2026-27 and another 15.4% to $7.9 billion in 2027-28 due to higher interest rates and lower losses on sales of securities. Revenues are expected to grow more slowly over the remainder of the forecast horizon, averaging 2.7% per year as growth in the level of international reserves and other loans and investments is largely offset by waning foreign interest rates and foreign exchange rates on reserve assets, for which income is received in foreign currency but reported in Canadian dollars.

Canada's surtaxes in response to U.S. tariffs on Canadian goods

As of October 26, 2026, $14.1 billion in gross revenue has been assessed from Canada's counter tariffs in response to U.S. tariffs since March 4, 2025. A total of $8.9 billion in revenue has been remitted or relieved to mitigate the impact of the counter tariffs on the Canadian economy. The net revenue assessed is $5.2 billion and remains subject to revision.

The revenue projections assume these countermeasures will remain in place in 2027-28. The continued application of the counter tariffs is subject to outcomes of discussions with the United States to resolve U.S. tariffs applied on Canadian exports.

Canada's surtaxes on certain imported goods from China

As of October 26, 2026, $577 million in gross revenue has been assessed under the China Surtax Order (2024) since October 2024. A total of $359 million in revenue has been remitted or relieved to mitigate the impact on the Canadian economy. The net revenue assessed is $218 million and remains subject to revision.

The figures in Chart A1.3 and A1.4 below detail the net revenue assessed as of October 26, 2026. As additional claims for remission are processed for these surtaxes, the total amount of relief provided will increase, which will result in downward revisions to net revenues assessed.

Note: Net revenues are from when the surtax came into force up to October 26, 2026, and are subject to revision. U.S. counter-tariffs currently in force include those on certain steel and aluminum products (since March 13, 2025), certain U.S. vehicles (since April 9, 2025), and new counter tariffs on additional U.S. goods, as well as increased tariff rates on most subject U.S steel and aluminum products (since September 8, 2026). The March 4 Order (U.S.) and the China Surtax on Electric Vehicles have been repealed (effective September 1, 2025, and March 1, 2026, respectively). Totals may not add up due to rounding.

Outlook for expenses

Table A1.10 provides an overview of the projection for total expenses by major component.

Major transfers to persons

Major transfers to persons are projected to grow at an average of 4.1% per year from 2026-27 onward, increasing from $153.4 billion in 2026-27 to $180.2 billion in 2030-31:

Old Age Security program payments are projected to increase by 8.0% in 2026-27 to $89.4 billion, and to continue to increase by 5.2% on average annually over the remainder of the forecast horizon. This is driven by an increase in the number of recipients and projected consumer price inflation, which is expected to average 2.2% from 2026 to 2030, to which benefits are fully indexed.

EI benefits are projected to reach $32.9 billion in 2026-27, up 14.1%, and continue to increase by 1.6% on average annually. Higher EI benefits in 2026-27 largely reflect new tariff support measures that expanded access to EI benefits. Over the forecast horizon, growth in EI benefits is supported by growth in average weekly earnings and by new measures announced in this budget.

Canada Child Benefit payments are projected to increase 3.6% to $31.2 billion in 2026-27, largely reflecting the indexation of benefits to consumer price inflation. Payments are expected to grow at an average of 3.5% annually over the remainder of the forecast horizon.

Major transfers to provinces, territories, and municipalities

Major transfers to provinces, territories, and municipalities are projected to grow at an average of 2.9% per year from 2026-27 onward, increasing from $116.9 billion in 2026-27 to $131.2 billion in 2030-31:

The Canada Health Transfer (CHT) is projected to increase from $57.4 billion in 2026-27 to $67.7 billion in 2030-31, supported by the CHT growth guarantee of at least 5% until 2027-28, after which it will grow in line with a three-year moving average of nominal GDP growth, with funding guaranteed to grow by at least 3% per year.

The Canada Social Transfer will increase from $17.9 billion in 2026-27 to $20.2 billion in 2030-31, reflecting legislated growth of 3% per year.

Equalization payments are indexed to the three-year average of nominal GDP growth and are projected to grow 4.1% annually, on average, from $27.2 billion in 2026-27 to $31.9 billion in 2030‑31.

Territorial Formula Financing is projected to grow 5.5% annually, on average, from 2026-27 to 2030-31, due to growth in provincial/local expenditures, which are major components of the formula.

Health agreements with provinces and territories are projected to remain at $4.3 billion in 2026-27 and 2027-28, reflecting $2.5 billion per year for tailored bilateral agreements, $1.2 billion per year in transfers supporting home and community care and mental health and addictions services (which is being extended for one year in Budget 2026), and $600 million per year in transfers for long-term care. The latter two funding sources expire after 2027-28.

Canada-wide early learning and child care transfer payments are expected to decrease from $10.3 billion in 2026-27 to $8.8 billion in 2030-31, reflecting the phasing out of the Early Learning and Child Care Infrastructure Fund in 2026-27 and the ending of a temporary top-up of $5.4 billion over two years, starting in 2026-27, provided to ensure the sustainability of the system. Early learning and child care bilateral agreements are subject to a temporary 3% funding increase for four years, beginning in 2027-28.

Build Communities Strong Fund– Community Stream payments, which are indexed at 2% per year with increases applied in $100 million increments, are expected to grow from $2.5 billion in 2026-27 to $2.8 billion in 2030-31.

Other fiscal arrangements are projected to reduce transfers by $8.5 billion in 2026‑27 and $9.8 billion by 2030-31 due to the Quebec Abatement. The Quebec Abatement reflects historical arrangements under which Québec residents pay lower federal taxes in lieu of federal cash support for certain social programs. As federal transfers to Québec are otherwise calculated on the same basis as those to other provinces, an equivalent amount is recovered from Québec's cash transfers.

Direct program expenses

Direct program expenses consist of other transfer payments administered by departments and other direct program expenses. Growth in direct program expenses from 2026-27 to 2030-31 is driven disproportionately by investments identified in the Capital Budgeting Framework, which are growing faster than day-to-day expenses. Growth in capital investment expenses, most of which are in direct program expenses, averages 7.0%, while growth in direct program expenses excluding capital investments averages 0.2%. Overall growth in direct program expenses is expected to average 1.5% from 2026-27 to 2030-31.

Other transfer payments administered by departments are projected to rise from $122.4 billion in 2026-27 to $129.2 billion in 2030-31. This growth is mainly due to programs identified under the Capital Budgeting Framework, such as support for electric vehicle battery manufacturing, clean economy investment tax credits, the Strategic Response Fund, and the Canada Public Transit Fund.

Other direct program expenses reflect the cost of doing business for more than 100 government departments, agencies, and Crown corporations, as well as an allowance for doubtful accounts on taxes receivable. These expenses are forecasted to increase from $150.0 billion in 2026-27 to $159.5 billion by 2030-31, with growth muted by the phase-in of savings under the Comprehensive Expenditure Review. Growth in later years reflects rebuilding, rearming, and reinvesting in the Canadian Armed Forces, as well as investments identified in the Capital Budgeting Framework, including capital amortisation expense and expenses of the Canadian Infrastructure Bank.

Direct program expenses also include provisions for contingent liabilities, which reflect possible obligations arising from past events or transactions where the amount and timing of any future payment may be uncertain. These provisions include amounts related to claims and litigation, guarantees provided by the government, assessed taxes under appeal, callable share capital in international organisations, and insurance programs of agent enterprise Crown corporations. Growth in contingent liabilities has an impact on the budgetary balance in the year the liabilities are recorded. These expenses can vary significantly from year to year and have averaged around $10 billion annually in recent years.

Public debt charges

Public debt charges are expected to increase from $60.2 billion in 2026-27 to $85.5 billion in 2030-31 due to projected increases in the stock of debt and higher interest rates. As a share of GDP, public debt charges are projected to rise from 1.8% in 2026-27 to 2.2% in 2030-31.

Net actuarial losses and gains

Net actuarial losses and gains, which represent changes in the value of the government's obligations for pensions and other employee future benefits and pension assets, are expected to increase from a projected net gain of $0.4 billion in 2026-27 to $3.7 billion in 2030-31. This path reflects the amortisation of projected gains due to an expected rise in interest rates used to measure the present value of the obligations, as well as the end of the amortisation of prior years' actuarial losses. The forecast of net actuarial losses and gains is volatile and sensitive to projections of future interest rates. To isolate these measurement impacts from underlying trends in government spending, expenses in Table A1.10 and the budgetary balance in Table A1.8 are shown before and after net actuarial losses and gains.

Financial source/requirement

This section sets out the government's expected cash flow sources and requirements from its operating and investing activities. Together with the budget's accrual-based projections, it provides a more complete picture of the government's finances.

The financial source/requirement measures the difference between cash coming into the government and cash going out. When more cash comes in than goes out, the government has a financial source; when more cash goes out than comes in, it has a financial requirement. In contrast, the budgetary balance is presented on a full-accrual basis of accounting, meaning that revenues and expenses are recorded when they are earned or incurred, regardless of when the related cash is received or paid. For example, the cost of pension benefits earned by employees this year is expensed this year, even though the cash is paid out years from now.

Because the budgetary balance and financial source/requirement measure different things, they typically differ. Table A1.11 identifies the adjustments required to reconcile the accrual-based budgetary balance to cash to determine the financial source/requirement. The table starts with the budgetary balance and adjusts for non-budgetary transactions. These transactions include revenues and expenses that affect the budgetary balance but do not result in cash flows in the year, such as the amortisation of non-financial assets like a road or a bridge. They also include changes in assets and liabilities that result in cash flows but do not affect the budgetary balance in the year, such as the payment of an accounts payable obligation.

The government has a financial source when an asset decreases, such as when a loan is repaid to the government, or when a liability increases. It has a financial requirement when an asset increases, such as when the government makes a loan or purchases a longer-lived asset, or when a liability decreases, such as when it pays an outstanding liability. Together, the budgetary balance and non-budgetary transactions determine the government's net source of (+), or requirement for (-), cash.

The government's financial requirements are an important component of its overall borrowing needs. Projected financial requirements, together with debt refinancing needs and other borrowing requirements, are reflected in the government's borrowing plan set out in the Debt Management Strategy in Annex 2.

As shown in Table A1.11, a financial requirement is projected in each year over the forecast horizon, reflecting financial requirements associated with the projected budgetary deficits and forecast requirements from non-budgetary activities.

A financial source is projected for pensions and other accounts over the earlier years of the forecast horizon, followed by projected requirements in the later years. Pensions and other accounts include the activities of the Government of Canada's employee pension plans and those of federally appointed judges and members of Parliament, as well as a variety of other employee future benefit plans, such as health care and dental plans, and disability and other benefits for veterans and others. A financial source for pensions and other accounts reflects the difference between non-cash pension and benefit expenses recorded as part of the budgetary balance, such as the expensing of the estimated cost of future benefits earned by employees during the year, and actual cash outflows for benefit payments.

Financial requirements for non-financial assets mainly reflect the difference between cash outlays for the acquisition of new tangible capital assets and the amortisation of capital assets included in the budgetary balance. They also include disposals of tangible capital assets and changes in inventories and prepaid expenses. Financial requirements are projected in each year over the forecast horizon, reflecting forecast net growth in non-financial assets, including defence purchases of items such as vehicles, ships, aircraft, IT systems, and weapons.

Loans, investments, and advances include the government's equity in enterprise Crown corporations, including Canada Mortgage and Housing Corporation (CMHC), Export Development Canada, the Business Development Bank of Canada, and Farm Credit Canada; loans to enterprise Crown corporations to finance their activities; and the up-to $30 billion in annual purchases of Canada Mortgage Bonds issued by CMHC. Financial requirements associated with Canada Mortgage Bond purchases decline in later years as earlier purchases begin to mature and principal is repaid to the government, partially offsetting the cash required for new purchases. They also include loans, investments, and advances to national governments and international organisations, and under government programs such as the Canada Student Financial Assistance Program.

In general, the government expects loans, investments, and advances to generate additional revenues in the form of interest or additional net profits of enterprise Crown corporations, which partly offset its debt charges associated with these borrowing requirements. These revenues are reflected in the budgetary balance projections.

Other transactions include the payment of tax refunds and other accounts payable, the collection of taxes and other accounts receivable, the conversion of other accrual adjustments included in the budgetary balance into cash, as well as foreign exchange activities and derivatives. Projected net cash requirements for other transactions over the forecast horizon mainly reflect changes in accounts payable and accounts receivable, primarily due to timing differences between the recognition of revenues and expenses and the associated cash flows, and forecast increases in the government's official international reserves held in the Exchange Fund Account.

Economic scenarios analysis

The Canadian economy has demonstrated considerable resilience and an ability to adapt to tariffs, trade disruptions, and heightened uncertainty. Nevertheless, its near-term outlook remains sensitive to developments in the global economy, including geopolitical tensions in the Middle East, renewed global inflation pressures, and higher global bond yields. These developments could result in weaker global growth and weigh on the Canadian economy through consumption, investment, and trade.

Looking further ahead, Canada's economic performance will increasingly depend on its ability to strengthen the foundations for sustained, long-term growth, including through higher business investment, greater technology adoption, and stronger productivity gains. These represent important sources of domestic upside to the outlook, particularly if investment responds more strongly than assumed to recent and forthcoming policy measures and emerging growth opportunities. The extent to which these opportunities translate into higher investment and productivity will be key to Canada's future growth trajectory, living standards, and resilience.

To support prudent fiscal planning and assess the sensitivity of the September survey forecast to alternative developments, the Department of Finance Canada has developed upside and downside scenarios for Canada's economic outlook (Table A1.12). The scenarios illustrate two broad risks highlighted by private sector forecasters: stronger domestic investment and productivity on the upside and more persistent external shocks on the downside.

Higher investment scenario

The higher investment scenario considers an environment in which businesses in Canada respond more strongly than assumed to new investment incentives and technological changes, supporting stronger investment and productivity growth. As such, the scenario more fully incorporates the departmental estimated economic impact of the Productivity Mega Deduction than is reflected in the September survey. Greater certainty around trade policy also supports business investment. Canadian businesses increase capital investment and adopt artificial intelligence and other productivity-enhancing technologies more extensively than assumed in the survey, improving efficiency and supporting stronger output growth. Strong global demand for energy, critical minerals, digital infrastructure, and related supply chains also encourages greater investment in Canada. Meanwhile, Canadian exporters expand and diversify export markets more rapidly than assumed, reducing their reliance on the U.S. market. While outcomes are more favourable than those in the survey, the scenario assumes that improvements occur gradually over the forecast horizon.

Higher investment and productivity growth increase the economy's productive capacity and support higher standards of living. As a result, economic activity strengthens over the forecast horizon, with annual real GDP growth exceeding the September survey forecast by 0.3 percentage points on average from 2026 to 2030. Stronger nominal income growth also lifts wages and corporate profits, leaving the level of nominal GDP about $26 billion higher per year on average relative to the survey forecast.

• Real GDP growth in 2027 reaches 2.0%, exceeding the September survey forecast of 1.7%. Reflecting the cumulative effects of greater capital deepening and total factor productivity growth, the level of real GDP in 2030 is about 1.3% higher than projected in the survey.
• Stronger economic growth supports labour demand and job creation, while higher productivity supports real wage gains. The unemployment rate declines somewhat more rapidly than in the survey, averaging 6.1% in 2027, compared with 6.2% in the survey.
• The boost to aggregate demand places some upward pressure on inflation, but this is offset by greater productivity and productive capacity. CPI inflation remains largely unchanged from the survey forecast throughout the projection horizon.
• Short-term interest rates are modestly higher than in the survey over the forecast horizon, consistent with stronger economic activity and potential output growth. In 2027, short-term interest rates average 2.8% versus 2.6% in the survey.
• GDP inflation is broadly unchanged relative to the survey forecast, as the impact of higher aggregate demand is largely offset by increased productive capacity.

Global supply disruptions scenario

In this scenario, geopolitical tensions in the Middle East persist for longer than anticipated, resulting in continued pressures on global energy markets, refining capacity, and critical shipping routes. These developments push up oil and diesel prices, as well as transportation and key input costs, adding to global inflationary pressures. As these pressures persist, central banks maintain more restrictive monetary policy for longer.

Meanwhile, persistent inflation and concerns about government finances in some advanced economies contribute to higher long-term interest rates through higher term premiums. At the same time, weaker economic prospects and greater investor risk aversion push up corporate risk premiums, further tightening financial conditions. These developments, along with increased uncertainty, weigh on investment and spending, slowing global economic activity. Stretched valuations and compressed risk premiums in the corporate sector before the shock further amplify the subsequent asset price corrections.

Canada is affected through several channels. Higher global energy prices improve Canada's terms of trade, but they also raise production costs and inflation, eroding household purchasing power. Higher interest rates increase borrowing costs for businesses and households, while deteriorating global financial market conditions undermine wealth and confidence, all of which reduce housing activity, business investment, and consumption. At the same time, continued uncertainty surrounding U.S. trade policy dampens business confidence, investment, and exports. Heightened uncertainty and weaker investment also restrain capital deepening, while slower global growth reduces demand for Canadian exports.

Together, these pressures result in slower economic growth and higher unemployment in the scenario compared with the September survey forecast. Real GDP growth slows materially in the near term before gradually recovering thereafter. Although higher energy and domestic prices provide some support to GDP inflation, nominal GDP remains, on average, $8 billion per year lower than the September survey forecast from 2026 to 2030.

• The Canadian economy contracts in the fourth quarter of 2026 before growth gradually recovers through the rest of 2027. Real GDP growth is 1% in 2027, compared with 1.7% in the survey. At its peak impact in 2027, the level of real GDP is about 0.9% below the survey forecast.
• Weaker economic activity weighs on labour market conditions. The unemployment rate increases accordingly, peaking at 6.7% in the first quarter of 2027 (versus 6.4% in the survey) and averaging 6.6% in 2027, compared with 6.2% in the survey.
• Despite the economy operating below its potential, inflation remains somewhat higher and more persistent due to increased cost pressures. Headline CPI inflation averages 2.5% in 2027, relative to 2.2% in the survey.
• Weaker aggregate demand puts downward pressure on short-term interest rates, but this is largely offset by higher and more persistent inflation, leaving short-term rates broadly unchanged from the survey forecast. Meanwhile, long-term interest rates are temporarily higher due to higher term premiums. The 10-year government bond yield averages 4.1% in 2027 versus 3.8% in the survey.
• GDP inflation is higher in the short term, reflecting higher domestic inflation and an improvement in Canada's terms of trade due to higher energy commodity prices. GDP inflation averages 2.4% in 2027 relative to 1.9% in the survey.

Fiscal impacts of economic scenarios

The potential impact of the economic scenarios on the projected federal deficit and federal debt to-GDP ratio is shown in Chart A1.5 and A1.6 below.

Global supply disruptions scenario fiscal impact

In the global supply disruptions scenario, the deficit would increase by about $2.2 billion annually, on average, over the planning horizon. The weakened outlook for nominal GDP would entail weaker tax revenue, partially offset by higher interest rates resulting in higher revenues from the government's interest-bearing assets, and interest and penalty revenue on tax debt. Overall revenues are projected to be lower by $0.6 billion per year. Total expenses would increase by an average of $1.6 billion per year over the horizon, primarily driven by higher transfers to persons, some of which are indexed to consumer prices, and by higher public debt charges.

As a result of the higher deficits and weaker nominal GDP growth, the federal debt-to-GDP ratio would be expected to rise to 40.7% by 2028-29 and fall to 40.5% by 2030-31.

Higher investment scenario fiscal impact

In the higher investment scenario, the deficit would improve by about $3 billion annually, on average, over the planning horizon. Stronger nominal GDP results in higher income tax revenues. Overall, revenues are projected to be $3.9 billion higher annually, on average, in this scenario. Total expenses would be higher by $0.9 billion annually, on average, primarily due to increased public debt charges from higher interest rates and partially offset by lower expected EI benefit payments, driven by a stronger labour market.

As a result of the lower deficits and stronger nominal GDP, the federal debt-to-GDP ratio would stabilise at 40.0% in 2027-28, then fall to 39.2% by 2030-31.

Long-term federal debt projections

Keeping the federal debt-to-GDP ratio on a stable or declining trajectory over the long term will help ensure that future generations are not unduly burdened by debt and that adequate fiscal room is preserved to respond to emerging fiscal pressures, challenges, and risks.

Long-term fiscal and economic projections can help assess whether the current fiscal policy trajectory is sustainable or policy adjustment may be needed. These simulations are not forecasts or predictions; rather, they are useful indicators of how economic and fiscal variables may interact under a defined set of conditions and assumptions.

Building on the Budget 2026 forecasts and extended using a set of reasonable assumptions described below, the baseline long-term fiscal projections continue to show the federal debt-to-GDP ratio declining over the long-term projection horizon (Chart A1.7).

Long-term projections also show that fiscal strength depends not only on sound fiscal management, but also on strong economic growth policies. Even modest, sustained gains in growth compound over time, strengthening Canada's fiscal position and creating room to invest in priorities. That is why pro-growth, pro-investment policies, such as those being advanced by the government, are so important. Alongside these efforts, technological advances, including in artificial intelligence, have the potential to meaningfully boost productivity growth and further reinforce Canada's fiscal strength. As an illustration, sensitivity analysis suggests that a modestly higher average annual economic growth by 0.25 percentage points over the long term would put the federal debt-to-GDP ratio on a notably steeper downward path.

Keeping the federal debt-to-GDP ratio from rising over the long term will help preserve fiscal capacity to manage future pressures, including, among others, recessions, climate change, the transition to net-zero emissions, and additional defence spending.

To form the long-term economic projections, the medium-term (2026 to 2030) economic forecasts presented in Budget 2026 are extended to 2060 using the Department of Finance Canada's long-term economic projection model. In this model, annual real GDP growth depends on labour productivity growth (0.9% per year), which is calibrated over its 2000-2025 historical average, and labour supply growth (average of 0.6% per year), which is based on demographic projections produced by Statistics Canada and projections for the labour force participation rate and average hours worked using econometric models developed by the Department. Assuming a constant 2% annual rate for GDP inflation, nominal GDP is projected to grow by an average of 3.5% per year from 2031 to 2060 (Table A1.13).

The long-term federal debt projections are developed through an accounting model in which each revenue and expense category is modelled as a function of its underlying demographic and economic variables, with the relationships defined by a mix of current government policies and assumptions. The key assumptions underlying fiscal projections from 2031-32 through 2060-61 are as follows:

• All tax revenues as well as direct program expenses grow broadly with nominal GDP, with the exception of a number of measures that will no longer be available after a certain date, such as the Clean Economy investment tax credits, which are incorporated based on their projected costs.
• The Canada Health Transfer, Canada Social Transfer, and Equalization grow with their respective legislated escalators. The remaining major transfers to provinces, territories, and municipalities grow according to their respective factors, such as nominal GDP, the respective populations, inflation, and current legislation or agreements.
• Old Age Security Program and Canada Child Benefit payments grow in line with the respective populations and are indexed to inflation. Employment Insurance (EI) benefits evolve in line with the number of beneficiaries and the growth in average weekly earnings. The EI premium rate is determined in accordance with current program parameters.
• The effective interest rate on federal market debt is assumed to average about 3.3% over the 2031-32 to 2060-61 period.

As with any projection that extends over several decades, long-term federal debt projections are subject to considerable uncertainty and are sensitive to the underlying assumptions. Sensitivity analysis helps illustrate how changes in key assumptions can affect the budgetary balance-to-GDP ratio and the federal debt-to-GDP ratio at the end of the long-term projection horizon (Tables A1.14 and A1.15).

Supplementary information

Sensitivity of fiscal projections to economic shocks

Changes in economic assumptions affect the projections of revenues and expenses. The following tables illustrate the sensitivity of the projected budgetary balance to the following economic shocks relative to Budget 2026 projections:

• A one-year, 1-percentage-point decrease in real GDP growth driven equally by lower productivity and employment growth.
• A decrease in nominal GDP growth resulting solely from a one-year, 1-percentage-point decrease in the rate of GDP inflation (assuming that the Consumer Price Index moves in line with GDP inflation).
• A sustained 100-basis-point increase in all interest rates.

These sensitivities are estimates that assume any decrease in economic activity is proportional across income and expenditure components and are meant to provide a broad illustration of the impact of economic shocks on the outlook for the budgetary balance. The sensitivity analysis conducted in this section has been presented routinely in budgets since 1994 and is separate from the upside and downside scenarios presented earlier in this annex. Actual economic shocks may have different fiscal impacts. For example, they may be concentrated in specific sectors of the economy or cause different responses in key economic variables (e.g., GDP inflation and CPI inflation may have different responses to a given shock). Aligned with presentation throughout Budget 2026, the fiscal sensitivities are based on a four-year time horizon.

A 1-percentage-point decrease in real GDP growth proportional across income and expenditure components reduces the budgetary balance by $5.6 billion in the first year, $5.9 billion in the second year, and $6.4 billion in the fourth year (Table A1.16).

• Tax revenues from all sources fall by a total of $4.6 billion in the first year. Personal income tax revenues decrease as employment and the underlying tax base fall. Corporate income tax revenues fall as output and profits decrease. GST revenues decrease because of lower consumer spending associated with the fall in employment and personal income.
• EI premium revenues increase as a result of an increase in the EI premium rate, which, under the seven-year break-even mechanism, adjusts to offset the increase in benefits due to the higher number of unemployed, such that the EI Operating Account balances over time.
• Expenses rise, mainly reflecting higher EI benefits (due to an increase in the number of unemployed) and higher public debt charges (reflecting a higher stock of debt due to the lower budgetary balance). This rise is partially offset by lower expenses, like Equalization, as the decline in real GDP is reflected in nominal GDP, to which these payments are indexed.

A 1 percentage-point decrease in nominal GDP growth proportional across income and expenditure components, resulting solely from lower GDP inflation (assuming that the CPI moves in line with GDP inflation), lowers the budgetary balance by $2.4 billion in the first year, $2.9 billion in the second year, and $1.1 billion in the fourth year (Table A1.17).

• Lower prices across the economy result in lower nominal income and, as a result, personal income tax revenues decrease. As the parameters of the personal income tax system are indexed to inflation, the fiscal impact is smaller than under the real GDP shock. For the other sources of tax revenue, the negative impacts are similar under the real and nominal GDP shocks.
• EI premium revenues decrease in response to lower earnings.
• Other revenues decline slightly as lower growth in tax revenue results in slightly lower interest and penalty revenue, and lower prices lead to lower revenues from the sales of goods and services.
• Partly offsetting lower revenues are the declines in the cost of statutory programs that are indexed to CPI inflation, such as Old Age Security program payments, which put downward pressure on federal program expenses. In addition, other program expenses are also lower as certain programs are linked directly to growth in nominal GDP, such as Equalization.
• Public debt charges decline in the first year due to lower costs associated with Real Return Bonds.

A 1% increase in interest rates decreases the budgetary balance by $4.1 billion in the first year, $5.6 billion in the second year, and $7.9 billion in the fourth year (Table A1.18). Higher interest rates directly impact estimated public debt charges on marketable debt in two ways. First, interest costs increase as existing debt matures and is refinanced at higher rates. Second, rising rates increase the expected cost of future borrowing needs. Public debt charges are estimated based on the current expectations for future changes in interest rates, which are subject to change based on economic conditions.

It is important to note that interest rates also directly affect other government revenues and expenses and that they typically do not change in isolation. That is, with higher interest rates, the government would realise some offsetting benefits, including:

• Higher revenues from the government's interest-bearing assets, and interest and penalty revenue on tax debt, which are recorded as part of other revenues.
• Corresponding downward adjustments that reduce the valuations of public sector pensions and employee benefits obligations, which are not incorporated in the table above.
• Higher government tax revenues if interest rate increases were due to stronger economic growth (also not included in the table above).

Policy actions taken since the Spring Economic Update 2026

To ensure transparency, Table A1.19 lists all policy actions taken since the Spring Economic Update 2026, to ensure that Canadians are continually well served by the programs they rely on and that government operations carry on efficiently.

Glossary of abbreviated titles   

Capital investment (detailed) outlook

As set out in Budget 2025, Annex 2, the Capital Budgeting Framework establishes a consistent way to classify spending, including tax expenditures, that contributes to capital formation—while maintaining pre-existing categories used in budgets and financial reports.

Capital investments, for the purposes of the framework, are defined broadly as any government expenditures or tax incentives that contribute to public or private sector capital formation, held directly on the government's balance sheet or on that of a private sector entity, Indigenous community, or another level of government.

To support consistent application of the framework, measures classified as capital investment are identified through two criteria and organised into six categories, summarised below.

Capital Budgeting Framework – Definitions and categories

Objective: Classify federal investments that support capital formation in a consistent and transparent manner to improve decision-making and comparability across programs and alignment with long‑term economic objectives.

Focus is on capital investments that meet the following two criteria:

• Conditionality: Funding recipient is required to invest in capital formation to receive the benefit.
• Clear linkage: Spending encourages or enables capital investment in identifiable sectors or projects.