Annex 1: 
Details of economic and fiscal projections

Economic Projections

The average of private sector forecasts has been used as the basis for economic and fiscal planning since 1994. This helps ensure objectivity and transparency, and introduces an element of independence into the government's economic and fiscal forecast.

The Department of Finance regularly surveys private sector forecasters for their outlook. Given the speed and scale of recent U.S. trade policy shifts, private sector forecasts have been revised frequently. The economic forecast reported here is based on a survey conducted in August 2025. The survey results have been adjusted to incorporate the actual results of the National Accounts for the second quarter of 2025 released on August 29, 2025.

The August survey includes the views of 11 private sector economists:

• BMO Capital Markets;
• CIBC World Markets;
• The Conference Board of Canada;
• Desjardins;
• Industrial Alliance Insurance and Financial Services Inc.;
• Laurentian Bank Securities;
• National Bank Financial Markets;
• Royal Bank of Canada;
• Scotiabank;
• TD Bank Financial Group; and,
• The University of Toronto (Policy and Economic Analysis Program).

Reflecting the shift in U.S. trade policy toward greater protectionism and the importance of exports to income generation across Canada the private sector outlook for real and nominal gross domestic product (GDP) in Canada has been significantly downgraded since the 2024 Fall Economic Statement (FES 2024) (Table A1.1). While the full effects will take time to materialise, higher U.S. tariffs and resulting trade uncertainty are expected to weigh persistently on Canadian economic performance, putting the economy on a lower trajectory.

In the August survey, private sector forecasters incorporated the tariff measures and trade policy developments available at the time, and formed their own assumptions regarding the evolution and potential resolution of trade conflicts. These assumptions underpin their projections for GDP growth, trade flows, and the broader macroeconomic outlook. Private sector economists expected current sectoral tariffs and those applied on non-CUSMA (Canada-United States-Mexico Agreement) compliant goods to remain in place through the end of 2025 and most of 2026. While some de-escalation is assumed over time, forecasters did not anticipate a return to broadly open, low-tariff global trade.

Furthermore, the baseline outlook assumes that trade uncertainty will remain elevated through 2026, reflecting ongoing tariff threats and a likely complex review of the CUSMA. This prolonged uncertainty is expected to weigh on business investment and dampen household confidence. A partial easing of uncertainty is embedded in the outlook beginning in 2027.

Comparisons of the August survey real GDP growth forecast to those of other institutions can be found in Table A1.2.

Following growth of 2.0 per cent annualised in the first quarter of 2025, real GDP contracted by 1.6 per cent in the second quarter, leaving growth at 0.2 per cent in the first half of the year. Forecasters expect growth to resume but to remain modest in the second half of the year amid trade uncertainty. Exports are expected to remain subdued as U.S. tariffs drive demand away from Canadian steel, aluminum, copper, lumber, and autos. Domestic demand continues to moderate in the near term as businesses reduce investment in the face of uncertainty. Households built up precautionary savings due to concerns about employment prospects. Nonetheless, consumption is expected to be the main driver of growth over the near term as households are supported by improved balance sheets and lower interest rates. Real GDP growth is projected to gradually pick up through 2026, supported by export stabilisation and a gradual pickup in domestic demand with lower interest rates.

Overall, private sector forecasters expect real GDP growth of 1.1 per cent in 2025 and 1.2 per cent in 2026—down sharply from the FES 2024 outlook of 1.9 per cent and 2.1 per cent, respectively. As the Canadian economy gradually adjusts to the new trading environment, growth is expected to pick up to about 2 per cent in 2027 and beyond. However, economic activity remains on a permanently lower trajectory, reflecting the combined effects of ongoing U.S. tariffs and trade tensions weakening productivity, reduced business investment, costs from restructuring trade and supply chains, and the resulting drag on incomes nationwide. Overall, the level of real GDP is about 1.8 per cent lower than forecast in FES 2024.

The unemployment rate is expected to peak at 7.2 per cent in the fourth quarter, averaging 7.0 per cent in 2025 (compared to 6.7 per cent expected in FES 2024) as trade tensions weigh on labour demand. The unemployment rate is expected to remain elevated and to only gradually decline to reach 6.0 per cent by 2029, about two years later than projected in FES 2024, pointing to persistent excess supply.

Private sector economists anticipate that the disinflationary effects of the fuel charge removal and excess supply will largely offset the direct and indirect cost pressures from tariffs and supply chain disruptions. As a result, Consumer Price Index (CPI) inflation is projected to average 2.1 per cent in 2025, slightly above the 2.0 per cent forecast in FES 2024. Inflation is then expected to return to 2.0 per cent in 2026 and remain at that level over the forecast horizon, in line with the FES 2024 projection. Since the August survey, Canada has removed most countermeasures put in place in March 2025 on U.S. imports, with this change effective September 1, 2025.

The survey was consistent with the Bank of Canada bringing the policy interest rate to 2.25 per cent by year-end. The Bank of Canada cut the policy rate by 25 basis points on October 29 bringing it to this level. Economists in the survey expected the policy rate to remain at 2.25 per cent through 2026. Short-term interest rates are expected to be about 30 basis points lower on average than forecast in FES 2024, settling around 2.6 per cent by the end of the forecast period in 2029.

Canadian long-term yields have declined somewhat over the past few months to stand around 3.1 per cent, reflecting weakening domestic economic data and renewed expectations of interest rate cuts. Private sector economists expect the 10-year bond rate to increase from an average of 3.3 per cent in 2025 to 3.6 per cent in 2029 (about 15 basis points higher than in FES 2024). The increase in long-term yields over the forecast reflects the expectation of larger global sovereign borrowing needs, particularly in the U.S. and Europe.

At the time of the survey, forecasters expected real GDP growth in the U.S. to slow to below 1 per cent annualised in the second half of the year reflecting the introduction of tariffs and increased policy uncertainty. U.S. growth has so far in 2025 remained robust as a surge in AI related investment spending is driving building activity. Economists expected U.S. growth to average 1.6 per cent in both 2025 and 2026 (previously 1.7 per cent and 2.0 per cent, respectively), and to strengthen to about 2 per cent in the outer years (similar to the FES 2024 outlook).

With global growth prospects being revised down compared to FES 2024 and growing oil supply from strong production by the Organization of the Petroleum Exporting Countries (OPEC), private sector economists expected crude oil prices to average US$66 per barrel this year and US$65 per barrel in 2026, previously US$77 and US$76 per barrel respectively. Crude oil prices are expected to gradually increase thereafter to reach US$71 per barrel by 2029, remaining below the US$77 per barrel expected in FES 2024.

GDP inflation came in flat in the second quarter of 2025, partly offsetting the strength of the end of 2024 and the first quarter of 2025. GDP inflation is expected to average 2.4 per cent in 2025 and 1.8 per cent in 2026 (compared to 2.0 per cent in both years in the FES). In the outer years, GDP inflation is broadly similar to the FES outlook.

Reflecting downward revisions to real GDP, the level of nominal GDP is expected to be lower by $8 billion in 2025 compared to the FES outlook. This downward revision widens substantially to $45 billion in 2026, reflecting the downgrade to both real GDP growth and GDP inflation outlook in 2026. Over the forecast horizon (2025-2029), the level of nominal GDP is lower than the FES 2024 projection by $40 billion on average per year.

Forecasters in the survey saw greater risks to the downside for Canada's economic outlook given the potential for additional U.S. sectoral tariffs, the risk that existing tariffs and spillovers could weigh more heavily on growth than anticipated, and a substantial repricing in financial markets. Should U.S. tariffs remain in place and uncertainty lingers, Canadian growth could slow further, delaying the rebound currently expected for late 2026 and beyond. To support prudent economic and fiscal planning amidst heightened global and trade uncertainty, the Department of Finance Canada has developed scenarios to assess the implications of these risks for the economic and fiscal outlook (see below for details).

Fiscal Projections

The fiscal outlook presented in this budget is based on the economic projections from the August 2025 survey of private sector forecasters, detailed in the previous section.

Alignment with Public Accounts

The projections across this annex are consistent with the Government of Canada accounting principles, aligning with the Public Accounts of Canada and Canadian public sector accounting standards. In addition, the budget adds an outlook for capital investments, where presentations are specifically indicated to be in accordance with the government's new Capital Budgeting Framework, detailed in Annex 2.

Changes to Fiscal Projections Since FES 2024

This section presents changes to the fiscal outlook since FES 2024. Table A1.3 provides an overview of all sources of change in the budgetary balance. Subsequent tables provide details on the outlook for capital investments and the day-to-day operating balance (Tables A1.4 and A1.5), and economic and fiscal developments including, for example, year-to-date financial results (Table A1.6).

Overall trade uncertainty and the economy's slowdown have weakened the fiscal outlook, particularly through 2026-27 as lower GDP growth and higher spending associated with relief measures weigh on the budgetary balance. Against this uncertainty, Budget 2025 invests to build strength at home guided by fiscal anchors—balance operating spending with revenues by 2028-29 and maintaining a declining deficit-to-GDP ratio.

Budget 2025 meets both fiscal anchors. As shown in Table A1.3, a deficit of $78.3 billion, or 2.5 per cent of GDP, is expected for 2025-26, falling to 1.5 per cent of GDP by 2029-30. In addition, the federal debt-to-GDP ratio remains relatively stable across the horizon. This responsible fiscal management will help preserve Canada's fiscal advantage.

Outlook for Capital Investments

The government's fiscal anchors are supported by a new approach to budgeting that prioritises spending that supports capital formation and crowds in private sector investment for long-term growth. This new approach is based on the Capital Budgeting Framework announced on October 6, 2025. This framework provides a consistent way to classify spending, including tax expenditures, that contributes to capital formation (called 'capital investment') from day-to-day operating spending. Further details are available in Annex 2.

Table A1.4 below indicates that capital investments will nearly double from $32.2 billion in 2024-25 to $59.6 billion in 2029-30. Table A1.5 includes projections for day-to-day operating spending, and demonstrates how this spending will be balanced with projected revenues from 2028-29 onwards.

How Trade Actions Impact the Fiscal Outlook

Global trade is being reshaped. For Canada, U.S. trade actions are disrupting decades of economic integration which introduces risks to Canada's economic and fiscal outlook and is contributing towards a deterioration in the government's outlook for revenues, expenses, and the budgetary balance.

While it is difficult to isolate the impacts of the U.S. trade actions, the downward revisions to the economic outlook, primarily from 2026-27 onward, could be expected to result in an average estimated deterioration in the budgetary balance of $7 billion per year over the forecast horizon relative to FES 2024.

U.S. trade actions are creating significant uncertainty for businesses. This dampens the outlook for corporate income tax revenues and net profits from enterprise Crown corporations. Economic assumptions that underpin the lower outlook include lower business activity and increased provisions for credit losses.

U.S. actions have also created heightened volatility. Year-to-date revenues from customs import duties, for example, have increased substantially due to the countermeasures imposed in response to U.S. tariffs. These duties are sensitive to potential trade policy changes, which could introduce additional volatility in the revenue forecast.

Other revenue streams have been less impacted thus far. Personal income tax revenue has remained strong despite the trade conflict, and both employment and average weekly earnings are up relative to the same time last year. Similarly, other excise taxes have shown limited impact of the trade disruption as indirect effects on consumption have been moderate to date. Looking forward, deteriorating economic conditions and heightened uncertainty are expected to create a drag on the fiscal outlook.

The government is taking steps to diversify trade and to invest in building Canada strong. These fiscal measures increase spending to support workers and businesses but also to create opportunities.

Overall, these factors introduce challenges to forecasting as the underlying assumptions affect the projections over the forecast horizon.

Economic and Fiscal Developments Since FES 2024

Table A1.6 shows how much of the change in the budgetary balance since FES 2024 is driven by economic and fiscal developments. This table does not include policy actions and measures introduced since FES 2024.

Budgetary revenue projections have increased relative to FES 2024 by an average of $7.5 billion annually from 2025-26 to 2029-30, primarily due to stronger corporate income tax revenues, reflecting both stronger anticipated 2024-25 results and continuing strength in 2025-26 year-to-date revenues. This strength has been somewhat offset by lower projected revenue in other streams, including enterprise Crown corporation revenues and other excise taxes and duties.

• From 2025-26 onward the outlook for income tax revenues has been revised up, on average, by $8.3 billion annually, largely reflecting higher corporate income tax revenues. Most of the increase is concentrated in the first two years of the forecast horizon, in part reflecting higher expected 2024-25 results and strength in early 2025-26 year-to-date results. In particular, this is driven by higher revenues from the financial sector.
• The outlook for excise taxes and duties has been revised down in 2025-26 owing to lower year-to-date Goods and Services Tax revenue. Over the remainder of the forecast horizon, the outlook is revised down by an average $0.4 billion per year in line with the projected general slowdown in nominal GDP.
• Revenues generated from Employment Insurance (EI) premiums are projected to be higher from 2025-26 to 2027-28, driven by growth in insurable earnings. Lower employment projections reduce anticipated revenues in the last two years of the forecast.
• Other revenues have been revised down in 2025-26 and over the forecast horizon due to lower expected net profits from enterprise Crown corporations. This is offset by higher expected interest and penalty revenue, net foreign exchange revenue and return on investments.

The outlook for program expenses has increased relative to FES 2024 by an average of $12.6 billion per year from 2025-26 to 2029-30, largely reflecting higher direct program expenses, primarily from higher projected expenses for contingent liabilities as well as allowance for doubtful accounts on taxes receivable.

• Major transfers to persons are projected to decrease in 2025-26 and 2026-27 from a reduction in the projected number of beneficiaries receiving elderly benefits, partially offset by higher Employment Insurance benefits in 2026-27. The remainder of the forecast horizon is broadly aligned with FES 2024 projections.
• Major transfers to provinces, territories, and municipalities have increased slightly due to higher projected Territorial Formula Financing based on higher projected expenditures of provincial and local governments. This is partly offset by lower projected nominal GDP, which results in downward revisions to Equalization and Canada Health Transfer payments in the outer years, and higher projected recoveries with respect to the Quebec Abatement.
• Direct program expenses are higher primarily from expected growth in contingent liabilities, principally due to Indigenous-related claims, as well as allowance for doubtful accounts on taxes receivable.
  • See an "Update on contingent liabilities", which shows the growth of contingent liabilities on the balance sheet, net of settlements. This increase reflects the government's efforts to work with Indigenous partners to address past injustices and accelerate the resolution of litigation and the implementation of negotiated settlements to support reconciliation in Canada and is aligned with accounting standards. Growth in contingent liabilities has an impact on the budgetary balance in the year the liabilities are recorded. In recent years, this expense has averaged over $10 billion per year. For prudence, Budget 2025 increases the projection of expenses for contingent liabilities across the forecast horizon, with a larger increase for 2025-26 where there is more information on specific negotiations, cases and claims.
  • An increase in projected expenses across the horizon has also been made for the allowance for doubtful accounts on taxes receivable, in line with the increases seen in 2023-24 and projected in 2024-25, which reflect the growth of the tax base as well as the aging of the associated receivable. Under Canadian public sector accounting standards, tax revenue is recorded as revenue in the year it is earned, while the annual provision for doubtful accounts, to reflect the best estimate of uncollectable amounts receivable, is charged to expenses.
• Projected direct program expenses are also higher from provisions for other obligations such as environmental liabilities and current service costs for pensions and other employee future benefits; and revised timing and spending against previously announced measures.

Public debt charges have increased over the forecast horizon primarily due to increased borrowing requirements and long-term interest rates, offset in part by lower short-term interest rates.

Net actuarial losses, which represent the amortisation of changes in the value of the government's accrued obligations for pensions and other employee future benefits and pension fund assets, are expected to be lower on average over the forecast horizon, reflecting updated actuarial assumptions.

Changes to the Pollution Pricing System Since FES 2024

Effective April 1, 2025, the Government of Canada ceased the application of the fuel charge in all jurisdictions where it applied, while maintaining its Output-Based Pricing System (OBPS) for industries in provinces and territories where it applies. At the same time, the federal government also removed requirements for provinces and territories to have a consumer-facing carbon price.

All direct proceeds from the federal system are returned over time in the province or territory where they were collected. With the cancellation of the fuel charge effective April 1, 2025, direct fuel charge proceeds return mechanisms for Canadians, small-and-medium-sized businesses, farmers, and Indigenous governments are being wound down. Proceeds from the federal OBPS will continue to be returned either to provincial and territorial governments or via the OBPS Proceeds Fund.

The net pollution pricing regime line (5) shown in Table A1.6 consolidates the change since FES 2024 in revenues and expenses from pollution pricing. It reflects net timing differences from winding down the collection of fuel charge proceeds and their corresponding return, while maintaining the OBPS and continuing to honour the return of fuel charge proceeds as specified to small-and-medium-sized businesses, farmers, and Indigenous governments.

The table at the end of Chapter 3 shows the impact of the policy decision to end the fuel charge to be a net cost of $4.2 billion in 2025-26. This amount reflects expenses related to the winding down of the fuel charge system, including but not limited to the final Canada Carbon Rebate payment in April. The resulting profiles of proceeds (revenue) and proceeds returned (expenses) are presented below in the Revenue Outlook and Expense Outlook tables A1.8 and A1.9.

Summary Statement of Transactions

Outlook for Budgetary Revenues

Table A1.8 provides projected budgetary revenues by major component in the fiscal framework.

Income Tax Revenues

Personal income tax revenues are projected to increase by 1.5 per cent to $237.9 billion in 2025-26. Softness in the growth of personal income tax revenues primarily reflects measures such as the cancellation of the proposed increase in the capital gains inclusion rate and the reduction of the lowest personal income tax rate. Over the remainder of the forecast horizon, growth in personal income tax revenues is projected to average 4.1 per cent per year.

Corporate income tax revenues are forecast to remain flat at $97.1 billion in 2025-26 due to fiscal measures such as the cancellation of the proposed increase in the capital gains inclusion rate and the extension of the Accelerated Investment Incentive. Revenue is then expected to decline slightly in 2026-27, before stabilising throughout 2027-28 and 2028-29. In 2029-30, growth in corporate income tax revenues is projected to increase to 3.9 per cent, reflecting a return to the long-term historical trend.

Income taxes paid by non-residents on Canadian-sourced income, notably dividends and interest payments, are expected to grow marginally by 1.4 per cent to $13.7 billion in 2025-26, reflecting weakness in year-to-date revenues. Over the remainder of the forecast horizon, growth in non-resident income tax revenues is expected to average 1.7 per cent per year, reflecting a slowdown in interest payments to non-residents.

Excise Tax and Duty Revenues

Goods and Services Tax (GST) revenues are projected to grow 3.6 per cent to $54.4 billion in 2025-26. Over the remainder of the forecast period, GST revenues are expected to grow in line with the taxable consumption outlook, increasing on average by 3.6 per cent per year.

Customs import duties are forecast to substantially increase by 57.8 per cent to $9.9 billion in 2025-26. This growth primarily reflects higher year-to-date revenues, driven by the application of countermeasures in response to the U.S. tariffs. The forecasted revenues from the countermeasures are net of estimated remissions and other relief (e.g., Duty Deferral Program). The current projections account for the application of the countermeasures until the end of 2025-26. Projections will be reviewed, as informed by developments, prior to the next fiscal year. Customs import duties are projected to grow in line with the projected growth in imports over the remainder of the forecast horizon. These duties are sensitive to potential trade policy changes, which could introduce additional volatility in the revenue forecast.

Other excise taxes and duties are expected to increase to $13.2 billion in 2025-26, or by 0.8 per cent, as sluggish growth in motive fuels is expected to be offset by other components of the excise taxes, particularly Air Travellers Security Charge. Other excise taxes and duties revenues are projected to grow to $13.6 billion by 2029-30.

Other taxes include revenues from the two-pillar international tax reform, agreed to on October 2021 by the members of the OECD/G20. Revenues from these taxes are projected to be zero in 2025-26 due to the repeal of the Digital Services Tax and Underused Housing Tax, then grow to $2.1 billion by 2029-30. This primarily reflects the projected revenues from international tax reform that would ensure that multinational enterprises are subject to a minimum 15 per cent tax, no matter where their profits are earned.

Proceeds from the Pollution Pricing Framework

Proceeds from the federal pollution pricing framework are expected to be adjusted down from $13.6 billion in 2024-25 to $0.0 billion in 2025-26 and onwards as the fuel charge ceased to apply effective April 1, 2025. Direct fuel charge proceeds return mechanisms for Canadians, small- and medium-sized businesses, farmers, and Indigenous governments in provinces where the federal fuel charge applied are being wound down. The residual value indicates the amounts related to the Output-Based Pricing System.

Employment Insurance Premium Revenues

Employment Insurance (EI) premium revenues are forecasted to grow at 2.1 per cent in 2025-26, supported by strength in the labour force and insurable earnings. Over the remainder of forecast horizon, EI premium revenues are projected to grow at an average of 3.4 per cent annually, reflecting steady gains in insurable earnings. In the long term, strength in the upward trend is partially offset by lower projected growth of the labour force.

The EI premium rate is projected to be $1.63 per $100 of insurable earnings in 2027. The actual premium rate for 2027 will be set in the fall of 2026, incorporating the recommendation of the Canada Employment Insurance Commission based on projections provided by the Office of the Chief Actuary.

Other Revenues

Other revenues consist of three broad components:

• Enterprise Crown corporation revenues are projected to increase by 40.3 per cent to $11.3 billion in 2025-26, largely reflecting higher expected net profits from the Bank of Canada. Over the remainder of the forecast horizon, growth is projected to average 16.9 per cent annually, driven by net profits of enterprise Crown corporations as well as interest revenues generated from the Government of Canada's purchases of Canada Mortgage Bonds (CMBs). The government will ensure that the pace and volume of CMB purchases are aligned with market conditions.
• Other program revenues are projected to decrease by 7.4 per cent to $31.8 billion in 2025-26. This is primarily driven by a decrease in interest and penalty revenue due to lower interest rates, and the waiving of interest and penalties as part of the tax relief and support provided to businesses in response to tariffs. Over the remainder of the forecast horizon, growth is projected to average 4.8 per cent annually.
• Net foreign exchange revenues and return on investments, which consist mainly of returns on Canada's official international reserves held in the Exchange Fund Account, are volatile and sensitive to fluctuations in foreign exchange rates and foreign interest rates. Assets in the Exchange Fund Account are mainly invested in debt securities of sovereigns and their agencies. They are held to aid in the control and protection of the external value of the Canadian dollar and to provide a source of liquidity for the government, if required. Net foreign exchange revenues and return on investments are projected to decline in 2025-26, largely due to lower short-term interest rates. Higher returns over the remainder of the forecast horizon are primarily driven by growth in the level of international reserves and other loans and investments.

Revenues from Canada's Countermeasures

As of October 17, 2025, $6.7 billion in gross revenue has been assessed from Canada's countermeasures in response to U.S. tariffs. This includes 25 per cent tariffs on $30 billion in goods imported from the U.S., 25 per cent tariffs on steel and aluminum products, and 25 per cent tariffs on vehicles.

A total of $3.0 billion in revenue has been remitted to mitigate the impact of the countermeasures on the Canadian economy. The net revenue assessed is $3.7 billion and remains subject to revision. As additional claims for remission are processed, the total amount of relief provided will increase, which will result in downward revisions to net revenue assessed. The figures in Chart A1.1 below detail the net revenue assessed as of October 17, 2025. The forecast for net revenues over the forecast horizon, including adjustments for product scope changes, anticipated remissions and other relief, is presented in Table A1.18, titled Policy Actions Since FES 2024.

Effective September 1, 2025, in recognition of the U.S.'s approach to allow most Canadian goods to enter the U.S. tariff-free under CUSMA, Canada removed countermeasures put in place in March 2025 on most U.S. imports. This includes removing tariffs on $30 billion in goods that had been in place since March 4, 2025 and $14.2 billion in goods that had been in place since March 13, 2025.

Canada's countermeasures on steel, aluminum and vehicles remain in effect.

Outlook for Expenses

Table A1.9 provides an overview of the projection for total expenses by major component.

Major Transfers to Persons

Major transfers to persons are expected to increase from $143.7 billion in 2025-26 to $170.3 billion in 2029-30:

• Elderly benefits are projected to reach $83.1 billion in 2025-26, up 3.5 per cent. Over the remainder of the forecast horizon, elderly benefits are forecast to grow by 5.9 per cent on average annually. Growth in elderly benefits is due to the increasing population of seniors and projected consumer price inflation, to which benefits are fully indexed.
• EI benefits are projected to increase by 22.6 per cent to reach $30.5 billion in 2025-26, largely reflecting a higher projected unemployment rate in 2026. EI benefits are expected to grow at an average of 1.7 per cent annually over the remainder of the forecast horizon.
• Canada Child Benefit payments are projected to increase 5.2 per cent to $30.1 billion in 2025-26, largely reflecting the indexation of benefits to consumer price inflation. Payments are expected to grow at an average of 2.7 per cent annually over the remainder of the forecast horizon.
• COVID-19 income support for workers were provided during the pandemic through the Canada Emergency Response Benefit, Canada Recovery Benefits, and the Canada Worker Lockdown Benefit. These temporary programs are now closed, with projected amounts in 2024-25 mainly reflecting redeterminations of benefit overpayments.

Major Transfers to Provinces, Territories, and Municipalities

Major transfers to provinces, territories, and municipalities are expected to increase from $110.8 billion in 2025-26 to $126.3 billion in 2029-30:

• The Canada Health Transfer (CHT) is projected to increase from $54.7 billion in 2025-26 to $65.0 billion in 2029-30, supported by the CHT growth guarantee of at least 5 per cent for five years (in effect from 2023-24 to 2027-28), after which it will grow in line with a three-year moving average of nominal GDP growth, with funding guaranteed to grow by at least 3 per cent per year.
• The Canada Social Transfer will increase from $17.4 billion in 2025-26 to $19.6 billion in 2029-30, reflecting legislated growth of 3 per cent per year.
• Equalization payments are indexed to the three-year average of nominal GDP growth and are projected to grow 3.7 per cent annually, on average, from $26.2 billion in 2025-26 to $30.3 billion in 2029‑30.
• Territorial Formula Financing is projected to grow 5.6 per cent annually, on average, from 2025-26 to 2029-30 due to growth in provincial/local expenditures, which are major components of the formula.
• Health agreements with provinces and territories are projected to remain at $4.3 billion in 2025-26 and 2026-27, reflecting $2.5 billion per year for tailored bilateral agreements, and $1.2 billion per year in transfers supporting home and community care and mental health and addictions services that expire after 2026-27. Another $600 million per year in transfers for long-term care expires after 2027-28.
• Canada-wide early learning and child care transfer payments are expected to increase from $7.9 billion in 2025-26 to $8.5 billion in 2029-30, reflecting 3 per cent per year growth for four years starting in 2027-28 as announced in 2025. This also includes $625 million over four years, beginning in 2023-24, for the Early Learning and Child Care Infrastructure Fund.
• Canada Community-Building Fund payments, which are indexed at 2 per cent per year with increases applied in $100 million increments, are expected to grow from $2.5 billion in 2025-26 to $2.7 billion in 2029-30.
• Other fiscal arrangements are projected to reduce transfers by $7.6 billion in 2025‑26 increasing to $9.1 billion by 2029-30 due to the Quebec Abatement. This reflects the value of the historical transfer of tax points to Quebec in the 1960s and 1970s, which results in a commensurate reduction in cash transfers to the province.

Pollution Pricing Proceeds Returned to Canadians

The government removed the federal fuel charge effective April 1, 2025; the federal Output-Based Pricing System remains in place. All direct proceeds from the federal pollution pricing system are returned over time in the province or territory where they were collected.

As a result, fuel charge proceeds return mechanisms for Canadians, small- and medium-sized businesses, farmers, and Indigenous governments in provinces where the fuel charge applied are being wound down, with proceeds returned projected to fall from $15.6 billion in 2024-25 to $5.0 billion in 2025-26. Amounts in 2026-27 and beyond reflect the maintenance of the federal Output-Based Pricing System only.

Direct Program Expenses

Direct program expenses consist of other transfer payments administered by departments, and other direct program expenses. Growth in direct program expenses from 2025-26 to 2029-30 is expected to average below 1 per cent, compared to 8 per cent in the past decade, taking into account planned expenditure reduction actions including the Comprehensive Expenditure Review. Some expenses such as for Indigenous claims and contingent liabilities can impact either other transfer payments or other direct program expenses.

Other transfer payments administered by departments are projected to increase from $115.6 billion in 2025-26 to $122.7 billion in 2029-30. Projected growth reflects much of the programming identified under the capital budgeting framework in Annex 2, such as support for electric vehicle battery manufacturing, clean economy investment tax credits, and the Investing in Canada Infrastructure Program.

Other direct program expenses reflect the cost of doing business for more than 100 government departments, agencies, and Crown corporations, as well as an allowance for doubtful accounts on taxes receivable. These expenses are forecasted to decrease from $150.2 billion in 2025-26 to $143.2 billion in 2027-28, from the phase-in of savings under the Comprehensive Expenditure Review beginning in 2026-27, as well as from provisioning for contingent liabilities being higher in 2025-26 than in later years. Gradual growth in later years reflects investments identified in the capital budgeting framework in Annex 2, including capital amortisation expense and expenses of the Canadian Infrastructure Bank; and rebuilding, rearming, and reinvesting in the Canadian Armed Forces.

Public Debt Charges

Public debt charges are expected to increase from $55.6 billion in 2025-26 to $76.1 billion in 2029-30 due to projected increases in the stock of debt and higher interest rates. As a share of GDP, public debt charges are projected to rise from 1.8 per cent in 2025-26 to 2.1 per cent in 2029-30.

Net Actuarial Losses

Net actuarial losses, which represent changes in the value of the government's obligations for pensions and other employee future benefits, are expected to decline over most years of the forecast horizon, from a projected loss of $5.0 billion in 2025-26 to a projected net gain of $4.5 billion in 2029-30, reflecting higher expected interest rates used to measure the present value of the obligations. The forecast of these net actuarial losses, including gains in the outer years of the forecast horizon, is volatile and sensitive to projections of future interest rates. To isolate these measurement impacts from underlying trends in government spending, expenses in Table A1.9 and the budgetary balance in Table A1.7 are shown before and after net actuarial losses.

Update on Contingent Liabilities

Consistent with Canadian public sector accounting standards, the government records a contingent liability when the probability of a future payment is considered likely and the amount can be reasonably estimated. Provisions for contingent liabilities are continuously reviewed and refined in light of new information and changing circumstances. Each year previously recognised contingent liabilities may be reduced or extinguished through payments, while new obligations or revaluations are recorded to reflect updated estimates. The resulting balance represents the stock of outstanding contingent liabilities. Changes in provisions due to revisions in estimates or the addition of new obligations are reflected in direct program expenses in the budget.

The majority of the government's contingent liabilities are associated with active alternative dispute resolution processes and pending or potential litigation. As shown in Chart A1.2, total recorded contingent liabilities increased from $13 billion in 2015-16, to a projected $55 billion in 2024-25, net of settlements reached. This increase reflects, in part, the government's efforts to work with Indigenous partners to address past injustices and accelerate the resolution of litigation and the implementation of negotiated settlements to support reconciliation in Canada. Recording a contingent liability in compliance with accounting standards ensures that the fiscal framework is provisioned to deliver on this important priority.

Increases in contingent liabilities in recent years have contributed to growth in direct program expenses, and variance between projections and year-end results. There can be considerable uncertainty in forecasting what contingent liabilities will eventually be recorded under accounting standards, which are estimates based on the best available information at the time of closing of the Public Accounts. The amounts recorded reflect assumptions about the outcomes of negotiations, cases and claims, as well as methodologies for calculating damages and settlements. Actions are underway to manage this uncertainty through improved visibility and oversight on large areas of contingent liabilities, such as Indigenous-related claims process. In addition, experts are also being engaged on how to improve public communication of contingent liabilities.

Financial Source/Requirement

The financial source/requirement measures the difference between cash coming into the government and cash going out. In contrast, the budgetary balance is presented on a full accrual basis of accounting, meaning that government revenues and expenses are recorded when they are earned or incurred, regardless of when the cash is received or paid.

Table A1.10 provides a reconciliation of the two measures, starting with the budgetary balance. Non-budgetary transactions shown in the table reflect the reversal of certain revenues and expenses included in the budgetary balance that have no impact on cash flows in the year, such as the amortisation of non-financial assets. They also include the addition of changes in asset and liability balances that have no accrual impact in a year but do result in the inflow or outflow of cash, such as the payment of accounts payable. An increase in a liability or decrease in an asset represents a financial source, whereas a decrease in a liability or increase in an asset represents a financial requirement. The sum of the budgetary balance and changes in asset and liability balances reflected under non-budgetary transactions is equal to the government's net source of (+), or requirement for (-), cash.

As shown in Table A1.10, a financial requirement is projected in each year over the forecast horizon, reflecting financial requirements associated with the projected budgetary deficits, as well as forecast requirements from non-budgetary activities.

A financial source is projected for pensions and other accounts for the earlier years of the forecast horizon, followed by projected requirements in the later years. Pensions and other accounts include the activities of the Government of Canada's employee pension plans and those of federally appointed judges and Members of Parliament, as well as a variety of other employee future benefit plans, such as health care and dental plans, and disability and other benefits for veterans and others. A financial source for pensions and other accounts reflects the difference between non-cash pension and benefit expenses recorded as part of the budgetary balance, such as the amortisation of net actuarial losses and the accrual of future benefits earned by employees during the year, and actual cash outflows for benefit payments.

Financial requirements for non-financial assets mainly reflect the difference between cash outlays for the acquisition of new tangible capital assets and the amortisation of capital assets included in the budgetary balance. They also include disposals of tangible capital assets and changes in inventories and prepaid expenses. Financial requirements are projected in each year over the forecast horizon, reflecting forecast net growth in non-financial assets.

Loans, investments, and advances include the government's equity in enterprise Crown corporations, including Canada Mortgage and Housing Corporation (CMHC), Export Development Canada, the Business Development Bank of Canada, and Farm Credit Canada, loans to enterprise Crown corporations to finance their activities, and the up-to $30 billion in annual purchases of Canada Mortgage Bonds issued by CMHC. They also include loans, investments, and advances to national and provincial governments and international organisations, and under government programs.

In general, loans, investments, and advances are expected to generate additional revenues for the government in the form of interest or additional net profits of enterprise Crown corporations, which partly offset debt charges associated with these borrowing requirements. These revenues are reflected in the budgetary balance projections.

Other transactions include the payment of tax refunds and other accounts payable, the collection of taxes and other accounts receivable, the conversion of other accrual adjustments included in the budgetary balance into cash, as well as foreign exchange activities and derivatives. Projected net cash requirements for other transactions over the forecast horizon mainly reflect changes in accounts payable and accounts receivable and forecast increases in the government's official international reserves held in the Exchange Fund Account.

Economic Scenarios Analysis

As a trading nation, Canada depends on exports for roughly one-third of GDP. Our prosperity is closely tied to global demand. However, large increases in U.S. tariffs and the resulting trade uncertainty are weakening Canada's economy. Tariffs reduce global demand for goods and services, disrupt supply chains, and constrain the global economy's productive potential. More directly, tariffs on Canadian steel, aluminum, autos, copper, softwood lumber, and wood products are putting Canadian jobs and businesses at risk.

The Canadian economy has already felt the impact. Real GDP rose at an annualised pace of 0.2 per cent in the first half of 2025. While growth is projected to pick up in the second half of this year, the pace is expected to remain modest, according to forecasters in the August private sector survey.

Canada retains strong economic fundamentals and the capacity to rebound from short-term shocks. Yet the current trade environment imposes persistent drags on the Canadian economy. Business investment, in particular, is highly sensitive to clarity about future conditions. Ongoing uncertainty about trade policy and demand prospects may prompt businesses to continue delaying or scaling back investment plans.

Lower investment has lasting consequences, reducing Canada's growth potential and productivity over the medium term. Consequently, the medium-term economic performance depends, in no small part, on coordinated action by Canadian governments and private sector actors to sustain economic demand—both domestically and abroad.

To facilitate prudent economic and fiscal planning around these risks and to further stress-test the August private sector survey forecast, the Department of Finance has developed downside and upside scenarios of Canada's economic outlook (Table A1.11).

Downside Scenario

In the August survey, forecasters assumed that trade uncertainty will remain elevated in the near term but largely dissipates by 2027. In contrast, in the downside scenario, trade uncertainty persists beyond 2026. This uncertainty may arise for many reasons. For example, it could stem from escalating geopolitical tensions and still ambiguous U.S. tariff plans—broad-based, sectoral, or country-specific—combined with challenges in concluding new agreements.

Beyond directly discouraging business investment—which lowers the economy's productive capacity—persistent uncertainty in this scenario also has indirect effects on the Canadian economy. Uncertain economic conditions lead firms to maintain precautionary financial buffers, resulting in reduced hiring. Similarly, cautious consumers delay major purchases to protect their finances and increase their saving buffers. Against a backdrop of a weakened global economy and trade environment, Canadian exports face lower demand, while commodity prices and financial asset values fall. Together, these factors contribute to a lower level of real GDP compared to the August survey forecast.

Canadian households and businesses must also cope with a tariff environment not seen in decades. The downside scenario incorporates greater challenges in adjusting to U.S. tariffs. For example, manufacturers may need to restructure supply chains, and exporters may need to find new buyers. These shifts come with adjustment costs, while higher tariffs limit future efficiency gains from trade and cross-border cooperation. As a result, the Canadian economy becomes less efficient, with cost pressures for producers and consumers and weaker business activity. Reflecting these challenges, Canadian productivity is lower than projected in the survey forecast.

Combining the trade uncertainty impacts and lower productivity, the downside scenario embeds a protracted period of slower economic growth and higher unemployment. On average, the level of Canadian nominal GDP is about $51 billion per year below the August survey forecast from 2025 to 2029.

• The Canadian economy contracts in the third quarter of 2025, with activity stalling in the fourth quarter, and remains sluggish throughout 2026 and 2027. On an annual basis, real GDP growth is 1.0 per cent in 2025, 0.6 per cent in 2026, and 1.4 per cent in 2027. This compares to 1.1 per cent, 1.2 per cent, and 2.0 per cent for 2025, 2026, and 2027 in the August survey. By the end of 2029, the level of real GDP is about 1.0 per cent and 2.7 per cent lower than the forecast levels in the August survey and FES 2024, respectively.
• Weaker economic activity induces businesses to slow hiring and lay off workers, pushing the unemployment rate higher. The unemployment rate remains elevated and above August survey expectations throughout the forecast horizon. The unemployment rate peaks at 7.4 per cent in the fourth quarter of 2025, followed by an average of 7.2 per cent in 2026 and 6.8 per cent in 2027, compared to 6.8 per cent in 2026 and 6.4 per cent in 2027 in the survey.
• As a result of weaker economic activity, CPI inflation is lower than in the August survey, at 1.9 per cent in 2026 and 1.7 per cent in 2027, versus 2.0 per cent in both years. Typically, in a context of reduced economic demand, the reduction in CPI inflation would be greater than is modelled in the downside scenario. However, the downside scenario also accounts for a reduction in potential output—arising from reduced capital investment and lower productivity—which offsets part of the downward pressure on inflation.
• In response to these developments, short-term interest rates remain lower than the survey forecast throughout the forecast horizon. On average, in 2026 and 2027, the 3-month treasury bill rate is at 1.9 per cent and 1.7 per cent respectively, lower than the survey forecast of 2.3 per cent and 2.5 per cent, respectively.
• GDP inflation is significantly lower as Canada sees a decline in terms of trade due to lower commodity prices and reduced CPI inflation. GDP inflation is 1.4 per cent in 2026 and 2027 versus 1.8 per cent and 2.0 per cent in the August survey.

Upside Scenario

In the upside scenario, trade policy uncertainty—both at home and abroad—eases more quickly than anticipated. At home, efforts to streamline internal trade, bolster competition, and build relationships with global partners help to generate more predictable demand for Canadian goods. Abroad, the U.S. reaches new trade agreements with key partners, and global trade tensions begin to subside by late 2025. This more stable trade backdrop supports stronger investment, higher trade flows, and improved economic confidence worldwide.

Additionally, to reflect the ongoing government-wide effort to create a more competitive environment, streamline regulatory processes, and make structural reforms that remove barriers to productivity and investment, the upside scenario illustrates how even modest improvements in productivity—measuring how efficiently labour and capital are combined to produce goods and services—can meaningfully expand Canada's economic capacity and enhance long-term resilience. This higher productivity makes Canadian goods and services more competitive both domestically and internationally, drives private sector investment, and creates opportunities to deliver major nation-building projects faster and better, thereby raising Canadian incomes.

Overall, a faster normalisation of trade policy uncertainty mainly boosts aggregate demand, while expanded productive capacity through structural policies lifts Canada's overall economic trajectory. On average, the level of nominal GDP is $25 billion higher on average per year from 2025 to 2029 relative to the August survey forecast.

• Real GDP growth accelerates, reaching 1.2 per cent in 2025, 1.6 per cent in 2026, and 2.3 per cent in 2027, compared to 1.1 per cent, 1.2 per cent, and 2.0 per cent, respectively, in the August survey. Reflecting the compounding effects of improved productivity, by the end of 2029, the level of real GDP is about 0.7 per cent higher than in the August survey, although it remains 1.1 per cent lower than forecast in FES 2024.
• Stronger economic growth is reflected in higher job creation and greater labour force participation. The unemployment rate declines more rapidly than in the August survey, averaging 6.7 per cent in 2026 and 6.2 per cent in 2027, compared to 6.8 per cent and 6.4 per cent in the survey.
• Upward price pressures increase as stronger aggregate demand takes hold. However, these are largely offset by productivity gains that expand domestic supply, keeping inflation broadly contained. As a result, CPI inflation is 2.1 per cent in 2026 and 2.0 per cent in 2027, versus 2.0 per cent projected in the August survey for both years.
• In response to these developments, short-term interest rates are only slightly higher than the survey forecast, at 2.4 per cent in 2026 and 2.6 per cent in 2027 compared to 2.3 per cent and 2.5 per cent in the survey.
• With modestly higher commodity prices and CPI inflation, GDP inflation averages 2.1 per cent in 2026 and 2027, above the survey forecast of 1.8 per cent and 2.0 per cent, respectively.

Fiscal Impacts of Economic Scenarios

The potential impact of the economic scenarios on the projected federal deficit and federal debt to-GDP ratio is shown in Chart A1.3 and A1.4 below.

Downside Scenario Fiscal Impact

In the downside scenario, the deficit would increase by about $9.2 billion annually, on average, over the planning horizon. The weakened outlook for nominal GDP would entail weaker tax revenue, and lower interest rates would result in lower revenues from the government's interest-bearing assets, and interest and penalty revenue on tax debt. Overall revenues are projected to be lower by $10.4 billion, per year. Total expenses would decrease by an average of $1.2 billion per year over the horizon, primarily driven by reduced public debt charges from lower interest rates and reductions in GDP-indexed transfers, partially offset by higher pension and benefit obligation valuations from lower interest rates.

As a result of the higher deficits and weaker nominal GDP growth, the federal debt-to-GDP ratio would be expected to rise to 45.3 per cent by 2028-29 and fall to 45.2 per cent by 2029-30.

Upside Scenario Fiscal Impact

In the upside scenario, the deficit would improve by about $5.0 billion annually, on average, over the planning horizon. Stronger nominal GDP results in higher income tax revenues. Overall, revenues are projected to be $5.0 billion higher annually, on average, in this scenario. Total expenses would be unchanged, on average, with higher public debt charges and major transfers offset by lower pension and benefit obligation valuations from higher interest rates.

As a result of the lower deficits and stronger nominal GDP, the federal debt-to-GDP ratio would stabilise near-term and fall more rapidly from 2026-27, reaching 42.2 by 2029-30.

Long-Term Debt Projections

Keeping the federal debt-to-GDP ratio on a downward path over the long term will help ensure that future generations are not overburdened with debt and that sufficient fiscal room remains to address emerging fiscal pressures, challenges, and risks.

Building on the Budget 2025 forecasts, baseline long-term fiscal projections continue to show the federal debt-to-GDP ratio declining over the long-term projection horizon (Chart A1.5). This conclusion is held under the downside scenario described in the preceding section that leads to higher deficits and federal debt-to-GDP ratios over the budget planning horizon.

As with any projection that extends over several decades, the long-term debt-to-GDP ratio projections presented in Budget 2025 are subject to a high degree of uncertainty and are sensitive to assumptions. They should not be viewed as predictions of the future, but instead as modelling scenarios based on a set of reasonable economic and demographic assumptions, assuming no future changes in policies. It is important to note that these projections do not fully reflect positive impacts that can be expected to result from recent and future economic policies. Some future fiscal pressures are also not accounted for in this baseline projection, including, among others, from recessions, additional defence spending, population aging, climate change, and the transition to net-zero emissions.

To form the long-term economic projections, the medium-term (2025 to 2029) economic forecasts presented in Budget 2025 are extended to 2055 using the Department of Finance Canada's long-term economic projection model. In this model, annual real GDP growth depends on labour productivity growth (0.8 per cent per year), which is calibrated over its 2000-2024 historical average, and labour supply growth (average of 0.6 per cent per year), which is based on demographic projections produced by Statistics Canada and projections for the labour force participation rate and average hours worked using econometric models developed by the Department. Assuming a constant 2 per cent annual rate for GDP inflation, nominal GDP is projected to grow by an average of 3.5 per cent per year from 2030 to 2055 (Table A1.12).

The long-term federal debt projections are developed through an accounting model in which each revenue and expense category is modelled as a function of its underlying demographic and economic variables, with the relationships defined by a mix of current government policies and assumptions. The key assumptions underlying fiscal projections from 2030-31 through 2055-56 are the following:

• All tax revenues as well as a direct program expenses grow broadly with nominal GDP, with the exception of a number of programs that will no longer be available after a certain date, such as the Clean Electricity, Clean Technology, and Clean Hydrogen investment tax credits, which are incorporated based on their projected costs.
• The Canada Health Transfer, Canada Social Transfer, and Equalization grow with their respective legislated escalators. The remaining major transfers to provinces, territories, and municipalities grow according to their respective factors, such as nominal GDP, the respective populations, inflation, and current legislation or agreements.
• Elderly benefits and Canada Child Benefit payments grow in line with the respective populations and are indexed to inflation. Employment Insurance (EI) benefits grow in line with the number of beneficiaries and the growth in average weekly earnings. The EI premium rate grows according to current program parameters.
• The effective interest rate on federal market debt is assumed, under the baseline scenario, to gradually increase from about 3.1 per cent in 2029–30 to 3.5 per cent by 2055-56.

Sensitivity analysis illustrates the impact of changes to key assumptions on the deficit-to-GDP and federal debt-to-GDP ratios at the end of the long-term projection horizon (Tables A1.13 and A1.14).

Supplementary Information

Sensitivity of Fiscal Projections to Economic Shocks

Changes in economic assumptions affect the projections of revenues and expenses. The following tables illustrate the sensitivity of the projected budgetary balance to the following economic shocks relative to Budget 2025 projections:

• A one-year, 1-percentage-point decrease in real GDP growth driven equally by lower productivity and employment growth.
• A decrease in nominal GDP growth resulting solely from a one-year, 1-percentage-point decrease in the rate of GDP inflation (assuming that the Consumer Price Index moves in line with GDP inflation).
• A sustained 100-basis-point increase in all interest rates.

These sensitivities are estimates that assume any decrease in economic activity is proportional across income and expenditure components and are meant to provide a broad illustration of the impact of economic shocks on the outlook for the budgetary balance. The sensitivity analysis conducted in this section has been presented routinely in budgets since 1994 and is separate from the upside and downside scenarios presented earlier in this annex. Actual economic shocks may have different fiscal impacts. For example, they may be concentrated in specific sectors of the economy or cause different responses in key economic variables (e.g., GDP inflation and CPI inflation may have different responses to a given shock). Aligned with presentation throughout Budget 2025, the fiscal sensitivities are based on a 4-year time horizon.

A 1-percentage-point decrease in real GDP growth proportional across income and expenditure components reduces the budgetary balance by $5.4 billion in the first year, $5.4 billion in the second year, and $5.9 billion in the fourth year (Table A1.15).

• Tax revenues from all sources fall by a total of $4.4 billion in the first year. Personal income tax revenues decrease as employment and the underlying tax base fall. Corporate income tax revenues fall as output and profits decrease. GST revenues decrease because of lower consumer spending associated with the fall in employment and personal income.
• EI premium revenues increase as a result of an increase in the EI premium rate, which, under the seven-year break-even mechanism, adjusts to offset the increase in benefits due to the higher number of unemployed, such that the EI Operating Account balances over time.
• Expenses rise, mainly reflecting higher EI benefits (due to an increase in the number of unemployed) and higher public debt charges (reflecting a higher stock of debt due to the lower budgetary balance). This rise is partially offset by lower other program expenses, like Equalization, as the decline in real GDP is reflected in nominal GDP, to which these payments are indexed.

A 1-percentage-point decrease in nominal GDP growth proportional across income and expenditure components, resulting solely from lower GDP inflation (assuming that the CPI moves in line with GDP inflation), lowers the budgetary balance by $2.3 billion in the first year, $2.6 billion in the second year, and $1.0 billion in the fourth year (Table A1.16).

• Lower prices result in lower nominal income and, as a result, personal income tax revenues decrease. As the parameters of the personal income tax system are indexed to inflation, the fiscal impact is smaller than under the real GDP shock. For the other sources of tax revenue, the negative impacts are similar under the real and nominal GDP shocks.
• EI premium revenues decrease in response to lower earnings.
• Other revenues decline slightly as lower growth in tax revenue results in slightly lower interest and penalty revenue, and lower prices lead to lower revenues from the sales of goods and services.
• Partly offsetting lower revenues are the declines in the cost of statutory programs that are indexed to CPI inflation, such as elderly benefit payments, which put downward pressure on federal program expenses. In addition, other program expenses are also lower as certain programs are linked directly to growth in nominal GDP, such as Equalization.
• Public debt charges decline in the first year due to lower costs associated with Real Return Bonds.

A 1 per cent increase in interest rates decreases the budgetary balance by $4.9 billion in the first year, $6.3 billion in the second year, and $7.9 billion in the fourth year (Table A1.17). Higher interest rates directly impact estimated public debt charges on marketable debt in two ways. First, interest costs increase as existing debt matures and is refinanced at higher rates. Second, rising rates increase the expected cost of future borrowing needs. Public debt charges are estimated based on the current expectations for future changes in interest rates, which are subject to change based on economic conditions.

It is important to note that interest rates also directly affect other government revenues and expenses and that they typically do not change in isolation. That is, with higher interest rates, the government would realise some offsetting benefits, including:

• Higher revenues from the government's interest-bearing assets, and interest and penalty revenue on tax debt, which are recorded as part of other revenues;
• Corresponding downward adjustments that reduce the valuations of public sector pensions and employee benefits obligations, which are not incorporated in the table above; and,
• Higher government tax revenues if interest rate increases were due to stronger economic growth (also not included in the table above).

Policy Actions Taken Since the 2024 Fall Economic Statement

To ensure transparency, Table A1.18 lists all policy actions taken since the 2024 Fall Economic Statement to ensure that Canadians are continually well-served by the programs they rely on and that government operations carry on efficiently.

Glossary of Abbreviated Titles

AAFC

Agriculture and Agri-Food Canada

ACOA

Atlantic Canada Opportunities Agency

ATSSC

Administrative Tribunals Support Service of Canada

CanNor

Canadian Northern Economic Development Agency

CATSA

Canadian Air Transport Security Authority

CBC

Canada Broadcasting Company

CBSA 

Canada Border Services Agency

CCG

Canadian Coast Guard

CED

Canada Economic Development for Quebec Regions

CER

Canada Energy Regulator

CFIA 

Canadian Food Inspection Agency

CHRC

Canadian Human Rights Commission

CIHR

Canadian Institutes of Health Research

CIRNAC

Crown-Indigenous Relations and Northern Affairs Canada

CMH

Canadian Museum of History

CMHC

Canada Mortgage and Housing Corporation

CMHR

Canadian Museum for Human Rights

CMIP

Canadian Museum of Immigration at Pier 21

CMN

Canadian Museum of Nature

CRA

Canada Revenue Agency

CSC 

Correctional Service Canada

CSE

Communications Security Establishment Canada

CSIS

Canadian Security Intelligence Service

CTA

Canada Transportation Agency

DFO 

Fisheries and Oceans Canada

DND 

National Defence

ECCC

Environment and Climate Change Canada

Elections

Office of the Chief Electoral Officer

ESDC

Employment and Social Development Canada

FIN

Finance Canada

GAC 

Global Affairs Canada

HC 

Health Canada

HICC 

Housing, Infrastructure and Communities Canada

IRB

Immigration and Refugee Board of Canada

IRCC 

Immigration, Refugees and Citizenship Canada

ISC 

Indigenous Services Canada

ISED

Innovation, Science and Economic Development Canda

JUS

Department of Justice

MAI

Marine Atlantic Inc.

NBC

National Battlefields Commission

NGC

National Gallery of Canada

NFB

National Film Board

NMST

National Museum of Science and Technology

NRC

National Research Council Canada

NRCan

Natural Resources Canada

NSERC

Natural Sciences and Engineering Research Council of Canada

OPC

Privacy Commissioner of Canada

PC

Parks Canada

PCH

Canadian Heritage

PCO

Privy Council Office

PHAC

Public Health Agency of Canada

PPSC

Public Prosecution Service of Canada

PrairiesCan

Prairies Economic Development Funding Canada

PS 

Public Safety

PSC

Public Service Commission of Canada

PSIC

Public Sector Integrity Commissioner of Canada

PSPC

Public Services and Procurement Canada

RCMP 

Royal Canadian Mounted Police

TBS 

Treasury Board of Canada Secretariat

TC

Transport Canada

VAC

Veterans Affairs Canada