Desjardins warns Ottawa’s tax cuts and tariff rollback deepening federal deficit

A new economic analysis from Desjardins suggests the federal government’s fiscal position has weakened significantly ahead of next month’s fall budget, largely due to recent income tax cuts and the removal of counter-tariffs on U.S. goods.

In a report released Tuesday, Desjardins deputy chief economist Randall Bartlett said Ottawa’s deficit could climb to $74.5 billion this fiscal year — about $6 billion higher than the parliamentary budget officer’s most recent projection.

Bartlett said the combination of higher spending on defence and infrastructure, along with tax relief measures introduced over the summer, has left federal finances in one of their most precarious positions in recent memory outside of a recession or pandemic.

“The government’s choices to cut taxes and roll back counter-tariffs may help support near-term growth,” Bartlett wrote, “but the resulting revenue loss will outweigh the economic gains in the short run.”

The economist cautioned that Canada should not take its strong international credit rating for granted, noting that ongoing uncertainty in U.S. trade relations could put additional pressure on Ottawa’s debt outlook.

Finance Minister Anita Anand is scheduled to table the fall economic statement and federal budget on November 4.