Desjardins Economics warned in October 2024 that Canada’s federal deficits were likely to exceed the path projected in the spring budget. Slower population growth from reduced immigration targets was one factor, alongside new spending commitments, lower inflation and a weaker-than-expected fiscal starting point.
A forecast, not an audited result
Senior director Randall Bartlett’s report assessed information available before the fall economic statement. Forecasts combine economic assumptions and announced policy; they are not the same as final public accounts and should be updated when official data arrives.
Desjardins noted that recent fiscal monitors suggested deficits were already tracking above projections for the current and previous fiscal years. New measures announced after Budget 2024 added further pressure.
Why lower inflation cuts both ways
Falling interest rates can eventually reduce borrowing costs as debt is refinanced, but lower inflation can also reduce nominal tax revenues. Governments collect taxes on wages, sales and profits measured in current dollars, so slower price and income growth may weaken revenue compared with a higher-inflation forecast.
The timing differs across the balance sheet. Interest savings do not arrive instantly because outstanding debt matures on different schedules, while revenue changes can appear sooner.
The immigration channel
Ottawa reduced permanent-resident targets and aimed to slow temporary-resident growth so housing and services could catch up. Fewer new residents could reduce some expenditure growth but also shrink the labour force, consumption and tax base relative to the previous plan.
Bartlett expected slower real gross domestic product growth to weigh on federal revenues more than it saved in expenses. Per-capita outcomes could differ from aggregate GDP, and the estimate depended on departures, transitions to permanent status and the composition of arrivals.
Defence and other commitments
The government had promised a path toward NATO defence spending equal to two per cent of GDP. Desjardins estimated that this commitment alone could add about $10 billion to the deficit by 2028–29, depending on the policy path.
Other political demands included higher old-age benefits and affordability measures. Every new programme required financing, offsets or acceptance of a larger deficit.
Fiscal anchors
The Liberals had stated goals for a declining deficit-to-GDP ratio and keeping deficits below one per cent of GDP in later years. An anchor is useful only if policy changes when forecasts show it will be missed or if the government transparently explains why the rule is being revised.
A government can borrow productively for assets or temporary shocks, but persistent operating gaps increase interest costs and reduce room for future crises. The quality and duration of spending matter alongside the headline deficit.
Options and trade-offs
Ottawa could reduce or delay spending, raise revenue, redesign programmes or accept a larger short-term balance. Bartlett suggested that further tax measures framed around intergenerational equity were possible after the spring capital-gains proposal drew opposition.
The Desjardins warning did not establish that immigration reductions were fiscally wrong. It showed that a policy intended to ease capacity pressures could also lower revenue and economic growth. A reliable evaluation required the later fiscal statement and audited results, with population, programme and interest assumptions clearly separated.
