Ottawa's creative accounting is misleading Canadians

The 2026 Spring Economic Update arrived with a polished narrative. The federal government wants Canadians to believe three claims: that Canada holds the strongest fiscal position in the G7, that the operating budget is nearing a balance, and that its new “sovereign wealth fund” is sound fiscal management.

However, a closer look reveals these claims rest on questionable accounting choices. When the high-gloss spin is stripped away, the reality of Canada’s fiscal health is far more sobering.

Ottawa frequently cites Canada’s net debt-to-GDP ratio for the government sector of 10.3% – the lowest in the G7 according to the International Monetary Fund (IMF) – as the gold standard of fiscal strength. What they omit is a crucial technicality: the IMF’s net debt calculation treats the combined assets of the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) as government assets that offset liabilities.

In reality, these funds are legally committed to current and future retirees. They are not a rainy-day fund for the federal treasury. Most other G7 nations operate “pay-as-you-go” systems where pensions are funded by current tax revenue, making their net debt look higher by comparison. To get an “apples-to-apples” view, one must look at gross debt-to-GDP. On this metric, Canada, with a ratio of 110%, sits in the middle of the pack.

Then there is the operating budget. The headline deficit for 2026/27 is $65.3 billion. However, thanks to its new “Capital Budgeting Framework” introduced in 2025, the government argues that $54.8 billion of that spending shouldn’t count against the ledger because it is capital investment. This allows them to claim a so-called “day-to-day” operating deficit of just $10.5 billion.

The problem lies in the definition of “capital.” Under Public Sector Accounting Standards (PSAS), capital spending is in respect of tangible assets the government owns and controls – think bridges, icebreakers, or buildings. Only about $8 billion of the government’s $54.8 billion “capital” spending actually fits this definition.

Included among the government’s expansive new definition of capital spending is a $5.4 billion a year Scientific Research and Experimental Development tax credit. It subsidizes research activity, but it does not create an asset the government controls. Neither do the film and video tax credits ($1 billion), Clean Economy investment tax credits ($2.9 billion), the GST rebate for rental construction ($1.6 billion), and battery manufacturing subsidies for auto companies ($1.3 billion), among other examples.

The recharacterization of tax credits and subsidies as capital expenditures creates a misleading fiscal outlook. While the government claims a $10.5 billion day-to-day operating deficit, adherence to PSAS standards reveals an operating shortfall of $58 billion. Even under a generous definition that includes any spending directly tied to building a physical asset, regardless of who owns it, the operating deficit would still be about $34 billion. This discrepancy indicates that the path to balancing the day-to-day operating balance by 2028/29 relies more on creative bookkeeping than on genuine fiscal discipline.

And then there is spending that bypasses the budget altogether. The Spring Economic Update establishes a “sovereign wealth fund,” the Canada Strong Fund. The fund is a new Crown corporation tasked with making equity investments in energy, critical minerals, and infrastructure projects. The government will borrow $25 billion over three years to provide initial capital for it. On the government's books, debt goes up, but so does the asset column, because the equity stake in the fund counts as a financial asset for the new Crown corporation. The result is that the deficit and every headline fiscal number the government reports remain unchanged, even though Ottawa has just taken on $25 billion in new borrowing.

True sovereign wealth funds like those in Norway, Alaska, and Saudi Arabia are built from government surpluses from resource revenues. They are designed to save surpluses for future generations. Because the federal government views its equity stake in the fund as an offsetting financial asset, the $25 billion in new borrowing never touches the deficit. The fund looks to be industrial policy masquerading as a savings vehicle, kept entirely off the main books.

Financial transparency is the bedrock of trust between a government and its citizens. By relying on pension assets to mask indebtedness, relabeling tax credits and subsidies as capital spending, and using Crown corporations to hide new borrowing, the government is providing a distorted picture of its books. True fiscal sustainability cannot be manufactured through definitions; it requires an honest accounting of what we owe and what we are actually spending. The government should eschew these creative accounting devices and use Public Sector Accounting Standards while providing full transparency on the Canada Strong Fund. Canadians deserve the full picture.