The Government’s New Budgeting Approach – PBO’s Initial Assessment
This note provides a summary of the PBO’s initial observations on the new budgeting approach, which will begin with Budget 2025.
On October 6, 2025, Finance Canada released details of the Government’s new budgeting approach. This note provides a summary of the PBO’s initial observations on the new budgeting approach, which will begin with Budget 2025.
Fall Budgeting Cycle
The PBO welcomes the change of tabling the federal budget in the fall, ahead of the new fiscal year. This will allow for better alignment between the budget and the Main Estimates and ensure that parliamentarians have a more comprehensive federal spending plan before they are asked to approve money for the new fiscal year. This is consistent with the PBO’s previous recommendations and recommendations made by the House of Commons Standing Committee on Government Operations and Estimates.
Public Accounts
While this change is viewed as an improvement in the transparency and accountability of the parliamentary financial cycle, there remains a gap regarding the timely publication of the Public Accounts of Canada, which have yet to be tabled for the 2024-25 fiscal year that ended on March 31, 2025.
The PBO has previously recommended that the Financial Administration Act be amended to move the required release date of the Public Accounts by three months, from December 31st to September 30th. This would align with parliamentary recommendations, OECD practices, and IMF guidelines for advanced practice in financial reporting. It would also meet the Government’s stated interest in providing parliamentarians with timely and clear information about government finances.
Capital Investment
The PBO is pleased that the Government is maintaining its existing financial reporting and is committed to remain fully compliant with Public Sector Accounting Standards.
Under the Government’s new Capital Budgeting Framework, capital investment is broadly defined “as any government expense or tax expenditure that contributes 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.”
Finance Canada acknowledges the breadth of its definition and noted its intent to focus on spending classified as capital investments that would meet conditionality and identifiability criteria. Finance Canada also identifies 6 categories of federal government spending that would be classified as capital investment.
Finance Canada’s definition and categories expand the scope of capital investment beyond the current treatment of capital spending in the Public Accounts of Canada.[^1] Based on our initial assessment, we find that the scope is overly expansive and exceeds international practice such as that adopted by the United Kingdom.
Specifically, the inclusion of corporate income tax expenditures, operating (production) subsidies and measures to grow the housing stock likely overstate the actual contribution of federal government spending to non-residential capital formation in the economy. That is, federal spending under these categories represents the fiscal cost of related measures and not necessarily the amount of non-residential capital formation that will be undertaken in the economy because of these measures.
Fiscal Anchors
The exclusion of spending through tax expenditures and operating subsidies will increase revenues and decrease expenses relative to their budgetary counterparts, resulting in a more favourable operating balance that will form the basis of one of the Government’s fiscal anchors. While appearing at the Standing Committee on Finance on October 6 to discuss the new framework, the Minister of Finance responded that one of the Government’s fiscal anchors was to balance the operating budget within the next 3 years, while another was to have a declining deficit-to-GDP ratio over the same period. The Minister of Finance did not indicate that the federal debt-to-GDP ratio—a key metric for assessing fiscal sustainability—was also one of the Government’s fiscal anchors.
Budget 2025
PBO looks forward to the release of Budget 2025 on November 4 and will provide a more in-depth assessment when additional details on the Government’s new Capital Budgeting Framework and fiscal anchors are disclosed.