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Fact check: Canada debt to gdp ratio 2025
Executive Summary
Canada’s federal debt-to-GDP ratio projections for 2025 are contested: early-2025 baseline forecasts showed a modest decline to roughly 41.9% in 2024–25 and 41.6% in 2025–26, while later analyses (September 2025) by budget watchdogs project the ratio will instead rise above 43% over the medium term due to larger deficits and new spending. The divergence stems from differing assumptions about policy changes, announced spending, and economic shocks such as trade disruptions; readers should treat the 41–43% band as the current range of official projections rather than a single settled number [1] [2].
1. Why the Numbers Don’t Agree — A Story of Assumptions and Timing
The disconnect between March and September projections reflects changes in fiscal policy and updated economic data rather than arithmetic error. The March 2025 baseline assumed no new measures and the sunsetting of temporary policies, producing a modest decline in the debt-to-GDP ratio into 2025–26; this was intended as a policy-neutral baseline to inform Parliament [1]. By contrast, the September 2025 outlook incorporated $115.1 billion in net new spending announced since the 2024 Fall Economic Statement and projected persistent deficits exceeding 1% of GDP, reversing the downward trajectory and pushing the ratio above 43% in the medium term [2] [3]. The timing and inclusion of policy decisions are therefore the primary drivers of divergent paths.
2. What the Parliamentary Budget Office Sees — Rising Debt Under Current Policy Choices
The Parliamentary Budget Officer’s September 2025 update explicitly forecasts a rising debt-to-GDP ratio, with the ratio climbing from 41.7% in 2024–25 to above 43% later in the medium term, driven by a sharp increase in the deficit to $68.5 billion in the current year and sustained deficits thereafter [4] [3]. This view highlights policy risk: announced spending and slower-than-expected revenue growth can overwhelm modest GDP growth, lifting the debt burden. The PBO’s estimates incorporate actual fiscal actions taken through late 2025, which explains their less optimistic path compared with earlier baseline reports [2].
3. The Government’s Baseline Perspective — A Slight Improvement If No New Measures
Government-published baseline forecasts from March 2025 present a different scenario: under assumptions that temporary measures expire and no additional permanent spending is enacted, the federal debt-to-GDP ratio would fall slightly from 42.1% in 2023–24 to 41.9% in 2024–25 and 41.6% in 2025–26 [1]. That baseline is designed to show what would happen under current policy settings and is useful for parliamentary scrutiny. However, it is not a prediction of what will occur if policymakers introduce new measures or if economic shocks materialize; it is a conditional projection emphasizing policy neutrality [1].
4. Macroeconomic Risks That Could Push Debt Higher — Trade, Growth, and Uncertainty
Independent outlooks and the Bank of Canada’s scenarios emphasize external and domestic risks that could worsen the debt ratio. The OECD and monetary authorities note that strong population growth masks weak per-capita growth and that a trade conflict with the United States or tariffs could cause GDP to stall or contract in illustrative scenarios, reducing revenues and increasing deficits [5] [6]. Such macro shocks would shift debt ratios upward relative to baseline projections, demonstrating the sensitivity of debt metrics to economic performance and external policy actions [6].
5. How Much Policy Choices Matter — Spending, Deficits, and Medium-Term Paths
The principal lesson across reports is that policy choices drive medium-term debt trajectories. The September 2025 forecasts explicitly attribute the deteriorating outlook to net new spending and persistent deficits over 1% of GDP; absent those choices, earlier baselines would have shown a declining ratio [2] [1]. This means fiscal planning decisions—whether to reduce deficits, allow measures to expire, or introduce permanent new programs—are decisive for whether the debt-to-GDP ratio stabilizes, falls modestly, or climbs above 43% under current projections [3].
6. What Readers Should Take Away — A Range, Not a Point Estimate
Given the timing and content differences between March and September analyses, the most accurate current characterization is a range: conditional baseline forecasts around 41.6–41.9% for 2025–26 contrast with revised PBO projections that see the ratio exceeding 43% over the medium term if announced spending persists. Stakeholders should therefore focus on the assumptions behind each projection—treatment of temporary measures, incorporation of post-2024 announcements, and macroeconomic scenario choice—when interpreting headline debt-to-GDP numbers [1] [2].
7. Bottom Line for Policymakers and Analysts — Watch Policies and Economy Closely
The evidence shows that Canada’s debt-to-GDP in 2025 is not a settled statistic but a reflection of recent fiscal choices and evolving economic risks. If policymakers allow temporary measures to sunset and restrain additional permanent spending, the debt ratio could dip toward the low 41% range per March baselines; if new spending is locked in and deficits remain above 1% of GDP, the ratio is likely to move above 43% as flagged by the PBO in September 2025. Analysts should monitor budget decisions, updated PBO reports, and macro shock indicators to track which path becomes reality [1] [4].