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 to ensure objectivity and transparency, and introduces an important element of independence into the government's economic and fiscal forecast. The economic forecast presented in this section is based on a survey of a group of private sector economists conducted in September 2024. The survey average has been adjusted to incorporate the actual results of the National Accounts for the third quarter of 2024 and the historical revisions released on November 29, 2024.

The September 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).

The macroeconomic inputs of the September 2024 survey remain consistent with recent economic data, and as such provide a reasonable basis for fiscal planning. Still, there have been an unusual number of policy developments since September, including geopolitical tensions globally and an incoming U.S. administration, that will have material implications for the outlook.

Overall, the survey inputs suggest that the Canadian economy will see moderate growth for 2024 as a whole before strengthening over the course of 2025. With inflation expected to remain close to 2 per cent, further monetary policy easing is expected over the next year.

The 2024 growth outlook has been revised up amid a more resilient Canadian economy in the first half of the year compared to the Budget 2024 outlook. Economists expected moderate below-potential growth in 2024, before it gradually picks up to reach about 2 per cent in the second half of 2025. Overall, private sector economists expect growth of 1.3 per cent in 2024 and 1.7 per cent in 2025, compared to 0.7 per cent and 1.9 per cent, respectively, in Budget 2024 (restated for historical revisions).

Private sector economists expected the softening in the labour market to be slightly more pronounced than previously thought in the Budget 2024 outlook. The unemployment rate was expected to average 6.4 per cent in 2024 and 6.7 per cent in 2025 (compared to 6.3 per cent in both years in Budget 2024), before gradually declining to 5.7 per cent by 2029. Since private sector economists were surveyed in September, the unemployment rate first fell from 6.6 per cent in August to 6.5 per cent in September and October, before rising to 6.8 per cent in November. The unemployment rate is expected to remain low by historical standards, and far below the peaks typically seen in recessions.

Private sector economists expected Consumer Price Index (CPI) inflation to remain at about 2 per cent in the last months of 2024 averaging 2.5 per cent for the year as a whole, the same as projected in Budget 2024, and 2.0 per cent in 2025 (compared to 2.1 per cent in Budget 2024).

Short-term interest rates have come down faster than private sector economists anticipated in September. Short-term interest rates were expected to decline to an average of 4.4 per cent in 2024 and to 2.9 per cent in 2025, about 10 basis points lower on average per year compared to Budget 2024. Short-term interest rates were then expected to settle at about 2.8 per cent over the remaining years of the forecast horizon (about 10 basis points higher than Budget 2024). Private sector economists have also revised down their outlook for long-term interest rates by about 10 basis points on average this year and next year. However, long-term rates are still expected to pick up from 3.1 per cent in 2025 to 3.5 per cent in 2029 (similar to Budget 2024).

WTI crude oil prices have been highly volatile over the past several months and have been trading at close to US$70 per barrel since September. Ongoing tension in the Middle East, developments around the US and Chinese economies, and OPEC+ supply outlook are likely to continue driving volatility in oil prices. Forecasters expected WTI crude oil prices to average US$76 per barrel over the forecast horizon (previously US$78 per barrel).

The completion of the Trans Mountain Expansion Project is contributing to a declining discount for Canadian oil while the additional pipeline capacity is boosting crude oil exports which contributed 0.3 percentage points to real GDP growth in the third quarter. The TMX expansion has supported a narrowing of the WCS-WTI price differential, which since its recent peak of $27 in late 2023, has narrowed to about $12 since October.

Reflecting upward revisions to the near-term outlook for real GDP and a similar GDP inflation outlook, the level of nominal GDP is expected to be higher by $17 billion in 2024 and by $9 billion on average per year over the 2025-28 period.

The Department of Finance did not re-survey private sector economists following the U.S. election given the continued high levels of uncertainty surrounding the implications for both the North American and global economies. The potential impact of these developments on the economic outlook remains unclear. Publicly available forecasts from the private sector have shown little change since the September survey, suggesting that the survey remains a reasonable baseline. To support prudent economic and fiscal planning amidst heightened global uncertainty, the potential implications of recent developments are examined in greater detail in the economic scenario analysis later in the annex.

Changes to Fiscal Projections Since Budget 2024

The fiscal outlook presented in the 2024 Fall Economic Statement is based on the economic projections provided by the September 2024 survey of private sector economists. The tables that follow present changes to the fiscal outlook since Budget 2024, including the impact of government policy actions taken since Budget 2024, measures in the 2024 Fall Economic Statement, year-to-date financial results, and Department of Finance upside and downside scenarios.

As shown in Table A1.2, a deficit of $48.3 billion, or 1.6 per cent of GDP, is projected in 2024-25. A deficit of $42.2 billion is projected in 2025-26, or 1.3 per cent of GDP. In 2026-27, the deficit is expected to fall below 1 per cent of GDP, achieving the government's ongoing fiscal objective.

Changes to the Fiscal Outlook Since Budget 2024

The total net incremental impact of new measures announced in the 2024 Fall Economic Statement is $21.1 billion over six years (Table A1.3). This includes $24.2 billion in new investments, including productivity-enhancing investments such as fully reinstating the Accelerated Investment Incentive and boosting the Scientific Research and Experimental Development tax incentive program, and affordability support (including the two-month GST/HST break for holiday essentials).

These investments are offset by $3.1 billion in new revenues and savings measures, including increased compliance activities by the Canada Revenue Agency ($2.4 billion).

Economic and Fiscal Developments Since Budget 2024

For the year ended March 31, 2024, the government is projected to record significant expenses related to Indigenous contingent liabilities and the COVID-19 pandemic. Absent these expenses, the 2023-24 budgetary deficit would have been $40.8 billion. However, when accounting for these two categories the deficit in 2023-24 is expected to be $21.8 billion higher than the Budget 2024 projection of $40 billion. More information on 2023-24 expected results can be found below.

After being revised down in 2024-25, the outlook for budgetary revenues has improved relative to Budget 2024, reflecting strength in non-tax revenue components, particularly in interest rate-related revenues.

• Income tax revenues are expected to be slightly lower by approximately $0.7 billion per year on average over the 2024-25 to 2028-29 period due to recent declines in corporate profits, in part due to higher interest rates.
• The outlook for excise taxes and duties has been revised down by an average $0.5 billion per year over the forecast horizon. This is due to the carry-forward of lower-than-expected 2023-24 results for tobacco and alcohol, customs import duties, fuel consumption and weaker retail sales. The downwards revision is partially offset by increases in the forecast of Goods and Services Tax over the horizon.
• Proceeds to be returned to Canadians from the federal pollution pricing framework from the provinces and territories that are a part of the federal backstop (Ontario, Nova Scotia, New Brunswick, Manitoba, Prince Edward Island, Saskatchewan, Alberta, Newfoundland and Labrador, Yukon, and Nunavut) are projected to be lower over the forecast horizon. The adjustment is largely due to lower expected fuel consumption. Pollution proceeds will continue to be fully returned to Canadians and businesses in the provinces or territories where they are generated, ensuring that the pollution pricing framework remains revenue neutral.
• Revenues generated from Employment Insurance (EI) premiums are projected to be higher over the forecast horizon driven by a growing labour force, stronger wages, and a slightly higher premium rate projection.
• Other projected revenues have been revised up over the forecast horizon due to greater projected interest rate-related revenues including interest and penalties, return on investments, and net foreign exchange revenues.

Program expenses in 2024-25 and beyond have been revised up, on average, relative to Budget 2024, mainly reflecting higher expectations for major transfers to persons and direct program expenses.

• Relative to Budget 2024, major transfers to persons are higher across the horizon, largely due to higher Employment Insurance benefits. The outlook for the Canada Child Benefit is broadly in line with Budget 2024, while elderly benefits are revised up in the near term and down in the outer years, largely reflecting revised assumptions about the number of elderly persons in those years. In 2024-25 this is partially offset from an increase in expected recoveries from benefit overpayments for emergency COVID-19 income supports for Canadians.
• Compared to Budget 2024, projected major transfers to provinces, territories, and municipalities have been revised upwards due to higher projected Territorial Formula Financing, offset in part by higher expected recoveries under the Quebec Abatement.
• Proceeds from the federal pollution pricing framework returned are projected to be lower over the forecast horizon, reflecting lower expected proceeds collected from the federal pollution pricing framework.
• Direct program expenses have been adjusted upward on average relative to the Budget 2024 forecast. Higher expenses are driven by higher current service costs for RCMP and veterans' disability and other benefits due to updated assumptions related to intake and unit costs based on recent experience; and higher allowances on tax receivables and interest expense on tax payables, related to the growth and aging of tax receivables and the resumption of normal audit activity post pandemic. Partially offsetting impacts come from lower anticipated offshore oil and gas royalties returned to provinces, revised provisions for contingent liabilities, and revised timing and spending against previously announced measures.

Relative to Budget 2024, public debt charges are lower in the near term, primarily due to lower short- and long-term interest rates as forecasted by private sector economists. Higher outer years are due to both higher long-term interest rates and borrowing requirements.

Net actuarial losses, which represent changes in the measurement of the government's obligations for pensions and other employee future benefits accrued in previous fiscal years and pension fund assets, are expected to be higher relative to Budget 2024, due to forecast losses resulting from lower than projected interest rates used to measure the present value of the obligations as of March 31, 2024, especially for RCMP and veterans' disability, and other benefits.

Prudent Accounting of Future Potential Developments

Since Budget 2024, the government identified significantly higher contingent liabilities, that is, possible obligations that have been assessed as likely to result in a future payment. While there were no payments associated with these liabilities in the 2023-24 fiscal year, the federal government is acting prudently by transparently accounting for these possible future payments in the 2024 Fall Economic Statement. This approach is consistent with Canadian public sector accounting standards.

In 2023-24, the government is expecting to record expenses totaling approximately $16.4 billion related to Indigenous contingent liabilities and $4.7 billion related to the COVID-19 pandemic. Absent these expenses, the projected 2023-24 budgetary deficit would have been roughly $40.8 billion, compared to Budget 2024's forecast of $40 billion.

Budget 2024 projected revenues of $465.1 billion for the fiscal year ending March 2024 underpinned by economic data and strong year-to-date revenue results. Revenues for 2023–24 are expected to be $5.5 billion lower compared to the projection, due to lower tax revenue consistent with the softening of the economy from higher interest rates as the Bank of Canada returned inflation to 2 per cent. This is a variance of 1.2 per cent on total revenue of over $459 billion.

Budget 2024 projected total expenses of $505.1 billion for the fiscal year ending March 2024 and actual expenses are expected to come in at $521.4 billion. However, the government notes, as required by certain accounting standards, that this $16.3 billion rise relative to the forecast in Budget 2024 is mainly owing to provisions for potential future developments, namely:

• higher-than-anticipated provisions for contingent liabilities relating to development in Indigenous claims currently being negotiated with parties or that are before the courts, and,
• provisions for presently unrecovered loans and benefits from support delivered during the COVID-19 pandemic.

The expense variance largely reflects the assessment and re-assessment by the government of existing assets and liabilities as required under its accrual accounting framework. That is, these are impacts from past transactions or in anticipation of possible future developments versus new in-year government spending. Payments would only be made if claims are settled or decided by the courts, while unrecovered pandemic-era loans and benefits would only be written off if collection activities are ultimately not successful.

Indigenous Priorities and Reconciliation

The federal government has invested more than $204 billion in Indigenous priorities since 2015, nearly tripling annual spending. These unprecedented investments help to ensure communities have the supports they need to thrive now and in the future.

The federal government is advancing reconciliation, supporting Indigenous Peoples' right to self-determination, and addressing historical wrongs and systemic racism. Since 2016, the government has provided over $60 billion to resolve Indigenous claims, including $23.3 billion to compensate First Nations children and families who were harmed in the past by discriminatory underfunding of the First Nations Child and Family Services program and of Jordan's Principle. The government is prioritizing negotiations and working to resolve litigation out-of-court. These accelerated efforts to address past injustices have contributed to an increase in both the number and value of settlements in recent years, as well as higher expenses for contingent liabilities.

When the probability of a future payment is considered likely, and the amount can be estimated, the government records a provision for the contingent liability. The probabilities and estimates are reassessed on an ongoing basis as material changes occur. The government cannot estimate with certainty when contingent liabilities would be paid, or if they would be paid at all, as settlements are a matter being negotiated with other parties or are before the courts.

Total recorded contingent liabilities are expected to have increased from $13 billion in 2015-16 to $57 billion in 2023-24, the vast majority of which relate to Indigenous claims. In 2022-23, the government recorded approximately $26 billion to resolve past injustices, increasing the budgetary deficit which would otherwise have been roughly $9 billion, or 0.3 per cent of GDP. In 2023-24, the government continued to work with Indigenous partners to collaboratively resolve litigation and recognize rights, and is expecting to record Indigenous claims expenses of $17.8 billion in 2023-24. Of this, $16.4 billion relates to potential future payments booked as contingent liabilities for which legal actions remain ongoing and are evolving, with the remainder being settlement payments not previously charged to expenses. These 2023-24 contingent liabilities were confirmed followingthe end of the fiscal year.

The government recognizes, from a fiscal management perspective, that anticipating and accounting for the costs of claims can be challenging and unpredictable. At the same time, it is committed to its work in redressing historical wrongs towards Indigenous Peoples.

Key Ministers will develop a clear plan forward to ensure that financial predictability and sustainability is interwoven with the federal government's reconciliation efforts. This plan will include convening a working group of experts to advise on the government's accounting of future potential contingent liabilities related to reconciliation. The working group's advice will inform the presentation of contingent liabilities in Budget 2025.

Emergency Pandemic Support for Canadians and Small Businesses

During the pandemic, the government delivered unprecedented programs to support the hardest-hit Canadians and businesses to weather the COVID-19 recession. We secured a national supply of vital vaccines to reopen the economy as soon as possible. The Canada Recovery Benefit provided financial support to employed and self-employed Canadians who were directly affected by COVID-19 during public health restrictions. The Canada Emergency Business Account provided interest-free, partially forgivable loans to nearly 900,000 small business and not-for-profit organizations. The federal government supported Canadians when they needed it the most.

This support was crucial to Canada's remarkable economic resilience and recovery. While largely now passed, there is a diminishing amount of pandemic legacy costs. The government expects to record $1.2 billion in 2023-24 for the write-down by the Public Health Agency of Canada of expired COVID-19 vaccines and therapeutics. In addition, a $3.5 billion provision in 2023-24 is expected to be recorded for loans and receivables related to the emergency support which kept Canadian workers and businesses afloat through the pandemic recession. The government is working hard, using a firm but fair approach to recover pandemic-era public funds where repayment is expected, to meaningfully reduce the provision for loans. This provision will be adjusted as more repayment information becomes available and loan recovery progresses.

Summary Statement of Transactions

Outlook for Budgetary Revenues

Table A1.7 above provides an overview of projected budgetary revenues by major component.

Income Tax Revenues

Due to stronger than expected employment growth and rising wages, personal income tax revenues—the largest component of budgetary revenues at 47 per cent in 2023-24—are projected to increase to $232.6 billion in 2024-25, or 6.9 per cent, based on revised estimates for household incomes. For the remainder of the forecast horizon, personal income tax revenue growth is expected to average 4.3 per cent, in line with projected nominal GDP growth.

Corporate income tax revenues are projected to increase by 5.2 per cent, to $86.8 billion in 2024-25, reflecting higher year-to-date corporate income tax receipts, steady growth in corporate profits, particularly in the financial sector, and the increased inclusion rate for capital gains. Beyond this, corporate income tax revenues are expected to grow by 2.5 per cent per year for the remainder of the forecast horizon.

Income taxes paid by non-residents on Canadian-sourced income, notably dividends and interest payments, are expected to grow 7.9 per cent to $13.5 billion in 2024-25. Over the remainder of the forecast horizon, growth in non-resident income tax revenues is expected to average 1.1 per cent reflecting a slowdown in dividends and interest payments to non-residents.

Excise Tax and Duty Revenues

Goods and Services Tax (GST) revenues are projected to grow 1 per cent to $51.9 billion in 2024-25, as the temporary GST/HST holiday will have a dampening impact on GST revenue. Over the remainder of the forecast, GST revenues are expected to grow on average by 4.2 per cent per year, in line with the outlook for taxable consumption.

Customs import duties are forecast to marginally increase by 0.4 per cent, to $5.6 billion in 2024-25, reflecting the surtax on Chinese steel and aluminum products and Chinese electric vehicles, and higher expected imports, largely offset by weaker year-to-date results. Over the remainder of the forecast horizon, growth will average 5.8 per cent in line with projected growth in imports.

Other excise taxes and duties are expected to increase by 4.3 per cent to $12.9 billion in 2024-25, reflecting strength in year-to-date data, offsetting lower tobacco sales and lower expected fuel consumption. These revenues are projected to grow at an average annual rate of 0.9 per cent over the remainder of the forecast period.

Other taxes include revenues from the Underused Housing Tax, announced in the 2021 Economic and Fiscal Update, and from the two-pillar international tax reform, which was agreed to in October 2021 and includes 147 members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. Revenues from these taxes are projected to grow to $3.1 billion by 2029-30, primarily reflecting the projected new revenues from Pillar Two of the international tax reform, which would ensure that multinational enterprises are subject to a minimum level of tax of at least 15 per cent, no matter where their profits are earned.

Pollution pricing proceeds to be returned to Canadians are forecast to grow from an estimated $12.8 billion in 2024-25 to $21.7 billion in 2029-30. Growth in the proceeds from the federal pollution pricing framework will be driven by the increasing carbon price that underlies the forecast.^{Footnote 1} Pollution proceeds will continue to be fully returned to Canadians, Indigenous governments, and small- and medium-sized enterprises in the provinces or territories where they are generated, as the framework is revenue neutral for the federal government.

Employment Insurance Premium Revenues

Employment Insurance (EI) premium revenues are forecasted to grow 4.6 per cent in 2024-25 supported by robust growth in the labour workforce and wages. Over the forecast horizon, EI premium revenues are projected to grow at an average of 3.5 per cent, reflecting steady earnings growth and increase in workforce.

The EI premium rate is projected to be $1.63 per $100 insurable earnings in 2026, 1 cent lower than the premium rate set for 2025 and 25 cents lower than it was between 2013 and 2016 ($1.88).

The EI premium rate reached its lowest levels in the last 25 years in 2020, 2021, and 2022 ($1.58). The average EI premium rate between 2016 and 2024 has been $1.65. The average premium rate for the preceding decade (2006-2015) was $1.81 (16 cents higher).

Other Revenues

Other revenues consist of three broad components: net income from enterprise Crown corporations; other program revenues from proceeds from the sales of goods and services, other miscellaneous revenues, and interest and penalty revenues; and net foreign exchange revenues and return on investments.

• Enterprise Crown corporation revenues are projected to increase in 2024-25, largely reflecting higher expected net profits from enterprise Crown corporations as well as interest revenues from increased lending to enterprise Crown corporations. Starting in 2025-26, growth in enterprise Crown corporation revenues largely reflects revenues generated from the Government of Canada's purchase of Canada Mortgage Bonds (CMB) and the Bank of Canada's expected gradual return to profitability. The pace and volume of CMB purchases will be monitored to align with market conditions.
• Other program revenues are affected by consolidated Crown corporation revenues, interest rates, and inflation. These revenues are projected to increase by an average of 11.9 per cent in 2024-25 primarily due to an increase in interest and penalty revenue on tax debt as a result of higher interest rates, and from sales of goods and services. Over the remainder of the forecast horizon, other program revenues are projected to continue to grow by 1.5 per cent.
• 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, can be 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 and 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. These revenues are projected to increase with higher rates of return and smaller net losses on sales of securities in the near term, before dipping slightly alongside projected rates of return over the next few years and then increasing towards the end of the forecast horizon as reserves continue to grow.

Outlook for Expenses

Table A1.8, above, provides an overview of the projection for total expenses by major component.

Major Transfers to Persons

Major transfers to persons consist of elderly benefits, which includes Old Age Security and the Guaranteed Income Supplement; Employment Insurance (EI) benefits; the Canada Child Benefit; as well as previous COVID-19 income support for workers.

Elderly benefits are projected to reach $80.9 billion in 2024-25, up 6.4 per cent. Over the forecast horizon, elderly benefits are forecast to grow by 5.2 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 20.4 per cent to reach $27.8 billion in 2024-25, largely reflecting a higher projected unemployment rate for 2024 and 2025. EI benefits are expected to grow at an average of 2.9 per cent over the forecast horizon.

Canada Child Benefit payments are projected to increase 6.9 per cent to $28.2 billion in 2024-25, largely reflecting the indexation of benefits to inflation. Payments are then expected to grow by 5.0 per cent in 2025-26, before moderating to an average 3.3 per cent growth over the remainder of the forecast horizon.

The government also provided important emergency pandemic support to Canadians. These include the Canada Emergency Response Benefit, the Canada Recovery Benefit, the Canada Recovery Sickness Benefit, the Canada Recovery Caregiving Benefit, and the Canada Worker Lockdown Benefit. These temporary programs are now closed, with forecasted amounts in 2024-25 mainly reflecting expected recoveries of benefit overpayments.

Major Transfers to Provinces, Territories, and Municipalities

Major transfers to provinces, territories, and municipalities, which include the Canada Health Transfer (CHT), the Canada Social Transfer (CST), Equalization, Territorial Formula Financing, health agreements with provinces and territories, Canada-wide early learning and child care, the Canada Community-Building Fund, and other fiscal arrangements, are expected to increase from $105.2 billion in 2024-25 to $125.5 billion in 2029-30.

The CHT is projected to increase from $52.1 billion in 2024-25 to $65.3 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 CST is legislated to grow at 3 per cent per year, from $16.9 billion in 2024-25 to $19.6 billion in 2029-30.

Equalization is projected to increase from $25.3 billion in 2024-25 to $30.7 billion in 2029-30, in line with a three-year moving average of nominal GDP growth. Territorial Formula Financing is projected to increase from $5.2 billion in 2024-25 to $6.2 billion in 2029-30 mainly due to growth in provincial/local expenditures, which are major components of the formula. Canada Community-Building Fund payments will increase from $2.4 billion in 2024-25 to $2.7 billion in 2029-30 as they are indexed at 2 per cent per year, with increases applied in $100 million increments.

Health agreements with provinces and territories total $4.3 billion per year from 2024-25 to 2026-27, which includes $2.5 billion per year for tailored bilateral agreements, $600 million per year for mental health and addictions services that expires in 2026-27, $600 million per year for home and community care that expires in 2026-27, and $600 million per year for long-term care that expires in 2027-28.

Canada-wide early learning and child care transfer payments are expected to increase from $6.6 billion in 2024-25 to $7.7 billion in 2029-30, this includes funding of $625 million over four years, beginning in 2023-24, for an Early Learning and Child Care Infrastructure Fund.

Other fiscal arrangements are projected to decrease from -$7.5 billion in 2024-25 to -$9.1 billion in 2029-30 primarily 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

As pollution pricing is revenue neutral for the federal government, proceeds returned to Canadians represent the return of all direct proceeds from the federal fuel charge to Canadians and businesses in the jurisdiction from which they were collected. Proceeds from the pollution pricing framework returned are expected to be $14.7 billion in 2024-25, increasing to $21.7 billion by 2029-30, reflecting a higher price on carbon pollution.

Proceeds are returned to Canadians through the Canada Carbon Rebate, to small- and medium-sized businesses through the Canada Carbon Rebate for Small Businesses, and to indigenous communities and farmers.

Direct Program Expenses

Direct program expenses consist of other transfer payments administered by departments, and departmental operating expenses. Growth is offset in part by planned expenditure reduction actions.

Other transfer payments administered by departments are projected to rise to $99.9 billion in 2024-25 and $118.7 billion in 2029-30. Projected growth reflects recent measures with growing profiles, such as the Canadian Dental Care Plan, support for electric vehicle battery manufacturing, and major economic investment tax credits.

Operating expenses reflect the cost of doing business for more than 100 government departments, agencies, and Crown corporations. Operating expenses are forecasted to decline to $129.4 billion in 2024-25 and grow to $134.1 billion in 2029-30. Decreases in 2024-25 relative to 2023-24 are driven by lower anticipated contingent liabilities and allowances on tax receivables, which remain areas of considerable uncertainty for the expense outlook. Growth over the outer years of the horizon is driven in part by the implementation of Canada's new defence policy Our North, Strong and Free; and employee benefits, pensions, and other compensation.

Net Actuarial Losses

Net actuarial losses, which represent changes in the measurement of the government's obligations for pensions and other employee future benefits, are expected to decline over the forecast horizon, reflecting higher expected interest rates used to measure the present value of the obligations. The forecast of these net actuarial losses, including gains in 2028-29 and 2029-30, is volatile and sensitive to projections of future interest rates. In order to isolate these measurement impacts from underlying trends in government spending, expenses in Table A1.8 and the budgetary balance in Table A1.6 are shown before and after net actuarial losses.

Public Debt Charges

Public debt charges are expected to increase from $53.7 billion in 2024-25 to $69.4 billion in 2029-30, due to higher borrowing requirements and higher long-term interest rates. Debt charges also reflect incremental borrowing associated with the Government of Canada's purchase of Canada Mortgage Bonds (CMBs). However, the CMB purchases are expected to generate sufficient revenues to completely offset any incremental debt charges. As a share of GDP, public debt charges are expected to rise from 1.8 per cent in 2024-25 to 1.9 per cent by 2029‑30, still near historic lows, and well below the peak of 6.5 per cent of GDP in the 1990s and 2.1 per cent in 2007-08 before the financial crisis. 

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 A1.9 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 amortization 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 A1.9 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 over most years of the forecast horizon. Pensions and other accounts include a variety of employee future benefit plans, such as health care and dental plans, disability, and other benefits for veterans and others, as well as the activities of the Government of Canada's employee pension plans, and those of federally appointed judges and Members of Parliament. 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 to reflect the value of benefits earned by employees during a fiscal year and the annual 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 amortization 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 investments in enterprise Crown corporations, including the Canada Mortgage and Housing Corporation, Export Development Canada, the Business Development Bank of Canada, and Farm Credit Canada, as well as financial requirements associated with the government's purchase of Canada Mortgage Bonds, and refinancing activities. They also include loans, investments, and advances to national and provincial governments and international organizations, and under government programs, including the Canada Emergency Business Account (CEBA).

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 are reflected in projections of other revenues. These revenues partly offset debt charges associated with these borrowing requirements.

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 cash requirements over the forecast horizon mainly reflect the payment of accounts payable and forecast increases in the government's official international reserves held in the Exchange Fund Account.

Economic Scenarios Analysis

As discussed in the Economic Overview, the September 2024 survey continues to provide a reasonable basis for economic and fiscal planning. However, the economic outlook is clouded by a number of key uncertainties, which could impact the trajectory of inflation, interest rates, and economic growth.

This uncertainty is also reflected among forecasts from various institutions. The Department's September survey of private sector economists is somewhat more pessimistic for 2025 than recent forecasts from most other institutions. The real GDP growth outlook for 2025 in the September 2024 survey is lower than forecasts from the Bank of Canada, the IMF, the OECD, and the PBO (Table A1.10 ). This highlights the prudence already built into the forecast.

Inflation, the labour market, and indicators of real economic activity have all evolved close to what was expected by private sector economists in the September survey, with inflation remaining around 2 per cent and GDP growth below potential. So far in the fourth quarter, the unemployment rate has averaged 6.7 per cent, below the peak of 6.9 per cent that private sector economists had expected for the fourth quarter.

Internationally, U.S. growth has been stronger than expected, while domestic demand in China has weakened. Oil prices have faced downward pressure and have remained at about $70 per barrel since September, partly due to easing global demand and potentially large increases in supply. Financial markets have seen both a rise in equity market prices and an increase in long-term interest rates, especially in the U.S. Meanwhile, the Canadian dollar, much like other global currencies, has been under pressure from a strong U.S. dollar since late-September.

Changes to immigration policies, largely anticipated prior to the survey, still carry some uncertainty regarding their economic impact, but private sector analysis published since the announcement of the federal government's 2025-2027 Immigration Levels Plan points to offsetting impacts of lower labour supply with a faster recovery in GDP per capita, a faster decline in unemployment, and better alignment of demand and supply in the housing market.

The outlook provided by the September survey depends on a number of key factors that remain difficult to predict. The economy may continue to benefit from robust growth in the U.S., driven by rising equity markets and increasing confidence among U.S. households and businesses. However, metrics of trade policy uncertainty have surged to levels not seen since 2018, raising concerns about potential disruptions to global trade and investment dynamics. The heightened level of uncertainty could dampen business investment and confidence, as well as economic activity and employment in Canada.

To facilitate prudent economic and fiscal planning, the Department of Finance has developed scenarios that incorporate uncertainties around the outlook and consider slower and faster growth tracks (Table A1.11).

The incoming U.S. administration's economic agenda could have different impacts for the economic outlook for both North America and the rest of the world. Such outcomes are only partly accounted for in the scenarios; on the upside through stronger U.S. growth; and on the downside through lower business and consumer confidence as well as weaker business investment and trade due to geopolitical tensions. Given the importance of trade to the Canadian economy, the uncertainty surrounding North American and global trade policies suggests that the balance of risks to growth are tilted to the downside. This is reflected in the scenarios, where the downside risks result in a larger drag on growth compared to the boost in the upside scenario.

The Department will continue to monitor developments in global trade policy and assess implications for the economic outlook.

Downside Scenario

The downside scenario sees a prolonged period of subdued growth in Canada as the impact from lower interest rates takes longer to support growth, consumer and business sentiment remain subdued, and labour market growth slows.

Confidence is further weighed down by heightened uncertainty globally around geopolitics and renewed disruptions to trade within North America and globally, creating a chill on investment. These factors lead to weaker consumption and a smaller rebound in housing market activity. Lower global demand also leads to lower oil prices. All factors considered, the level of nominal GDP in Canada is $42 billion below the survey, on average per year, in the downside scenario.

• Weaker domestic demand and lower global activity lead to a period of slow growth in Canada in the short term. On an annual basis, real GDP growth is 1.2 per cent in 2024 and 1.1 per cent in 2025 (compared to 1.3 per cent and 1.7 per cent, respectively, in the September survey).
• With a weaker economy, the unemployment rate rises more than expected, reaching a peak of 7.5 per cent in 2025Q1 (compared to 6.9 per cent in the survey) and averaging 7.1 per cent in 2025, (compared to 6.7 per cent in the survey).
• With slower global growth, commodity prices are lower. After averaging US$78 per barrel in 2023, WTI crude oil prices decline to US$75 per barrel in 2024 and US$65 per barrel in 2025 (down from US$77 per barrel in the survey) and then gradually converge close to the survey outlook by 2029.
• With more excess supply in the economy and lower commodity prices, CPI inflation remains below the target over the medium term, averaging 1.8 per cent in 2025 (relative to 2.0 per cent in the survey).
• In response to slower-than-expected growth and lower inflation, short-term rates decline faster than in the survey towards the end of 2024 and into 2025, and average 2.4 per cent in 2025 (about 50 basis points below the survey). Long-term rates also decrease into 2025, albeit less rapidly, to average 2.9 per cent during the year (about 20 basis points below the survey).
• GDP inflation is lower than in the survey, consistent with lower CPI inflation and the impact of lower commodity prices on Canada's terms of trade.
• Together, slower real GDP growth and lower GDP inflation reduce the level of nominal GDP by $42 billion, on average per year, compared to the survey.

Upside Scenario

In contrast, the upside scenario sees further improvement in the supply side of the economy both globally and in Canada, including a greater reversal of Canada's recent softness in real GDP per capita. This allows central banks, including the Bank of Canada, to increase the pace of monetary policy easing thereby getting rates to unrestrictive territory faster, leading to stronger demand and improved growth. Higher consumer confidence, along with generally resilient household finances, and a normalization of higher saving rates, supports robust consumer spending, while lower rates lift business investment. Globally, these developments translate into higher commodity prices, which Canadian producers benefit from on global markets. These developments result in economic growth picking up faster than expected. Overall, the level of nominal GDP is $34 billion above the survey, on average per year, in the upside scenario.

• As a result of lower interest rates and the spillover effects from a stronger global economy, the Canadian economy expands at a pace closer to potential towards the end of 2024 and the beginning of 2025 rather than below-potential growth expected in the survey. On an annual basis, real GDP growth is 2.2 per cent in 2025 (up 0.5 percentage points from the September survey).
• With a stronger economy, the unemployment rate rises by less than expected, reaching a peak of 6.8 per cent in 2024Q4 (compared to 6.9 per cent in the survey) and averaging 6.5 per cent in 2025 (compared to 6.7 per cent in the survey).
• CPI inflation is lower than in the survey, on average, in 2024 and 2025. CPI inflation is 2.4 per cent in 2024 and 1.7 per cent in 2025 (compared to 2.5 per cent and 2.0 per cent in the survey, respectively).
• GDP inflation is higher than in the survey as stronger global activity results in higher commodity prices. After averaging US$78 per barrel in both 2023 and 2024, WTI crude oil prices average US$86 per barrel in 2025 (up from US$77 per barrel in the survey) and remain US$6 per barrel above the survey on average per year over the rest of the forecast.
• Together, faster real GDP growth and higher GDP inflation raise the level of nominal GDP by $34 billion, on average per year, compared to the survey.

Fiscal Impacts of Economic Scenarios

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

Downside Scenario

In the downside scenario, the deficit would increase by about $6 billion annually on average over the planning horizon. The weakened outlook for nominal GDP would entail somewhat weaker tax revenues, and lower revenues on interest sensitive revenue components (e.g., interest revenues on tax debts and from the Exchange Fund Account) as a result of lower interest rates (total revenues down by $9.3 billion annually on average). Total expenses would be reduced by an average of $3.3 billion annually over the horizon, primarily driven by the effects of lower short-term interest rates on public debt charges and lower CPI inflation on inflation indexed benefits, partially offset by the impact of lower discount rates on pension and other employee future benefit obligations.

As a result of the higher deficits and weaker nominal GDP growth, the federal debt-to-GDP ratio would be expected to rise to 42.8 per cent by 2025-26, before declining to 39.9 per cent by 2029-30.

Upside Scenario

In the upside scenario, the deficit would improve by an average of $9.2 billion per year. Stronger nominal GDP growth results in higher income tax revenues, and the improved outlook for consumption results in higher projected GST revenues. Overall, revenues are projected to be $8.2 billion higher annually, on average, in this scenario. Total expenses would be reduced by an average of $0.9 billion annually, driven primarily by lower short-term interest rates reducing public debt charges in the near term.

As a result of the lower deficits and stronger nominal GDP growth, the federal debt-to-GDP ratio would fall in every year of the forecast horizon, reaching 37.0 per cent by 2029-30.

Long-Term Debt Projections

As with any projection that extends over several decades, the long-term debt-to-GDP ratio projections presented in the 2024 Fall Economic Statement 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.

Building on the 2024 Fall Economic Statement forecasts, the long-term fiscal projections continue to indicate that federal public finances are sustainable beyond the usual forecast horizon (Chart A1.4). This is despite adverse demographic trends, including an aging population. As discussed in more detail below, this conclusion is also robust to changes in assumptions, including, for example, the projected growth rate of real GDP.

Keeping the federal debt-to-GDP ratio on a downward trend over the medium- and long-term will help ensure that future generations are not burdened with debt and that fiscal room remains available to face future challenges and risks that are not accounted for in this projection. These include, among others, climate change, the transition to net-zero emissions by 2050, recessions, and geopolitical risk. Long-term fiscal sustainability is further reinforced by the government's ongoing fiscal objective set out in Budget 2024 to keep the deficit under 1 per cent of GDP in 2026-27 and future years (see Box "Preserving Fiscal Strength").

Preserving Fiscal Strength

As part of its responsible economic plan, the government announced in Budget 2024 that moving forward, deficits will be kept below 1 per cent of GDP beginning in 2026-27 and future years. The 2024 Fall Economic Statement upholds this objective. This is important to help continue delivering on the government's fiscal anchor: reducing federal debt as a share of the economy over the medium term. It also helps to ensure Canada's fiscal advantage is preserved over the longer term.

"Current fiscal policy at the federal level is sustainable over the long term. We estimate that the federal government could permanently increase spending or reduce taxes by 1.5 per cent of GDP ($46 billion in current dollars, growing in line with GDP thereafter) while maintaining fiscal sustainability. Our assessment reflects all Budget 2024 measures."

Keeping deficits below 1 per cent of GDP provides additional insurance that public finances remain strong beyond the medium term as Canada adapts to an aging population, the impacts of climate change, and the transition to net zero emissions by 2050. This ensures Canada has the fiscal capacity to weather future shocks, such as how the federal government was able to provide temporary, emergency supports to Canadians and businesses throughout the pandemic. It also helps to preserve the overall strength of Canada's fiscal position compared to other G7 countries.

For example, long-term simulations by the Department of Finance suggest that the federal debt-to-GDP ratio and the public debt charges-to-GDP ratio would still be on a declining trend and remain historically low under both permanently slower economic growth (-0.25 percentage points) and higher interest rates (+0.5 percentage points) if medium-term deficits are limited to 1 per cent of GDP (Charts A1.5 and A1.6).

To form the long-term economic projections, the medium-term (2024 to 2029) economic forecasts presented in the 2024 Fall Economic Statement 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 (0.9 per cent per year), which is calibrated over its 2000-2023 historical average, and labour supply growth (average of 0.8 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 3.7 per cent per year from 2030 to 2055 (Table A1.12).

The long-term federal debt projections are obtained 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 direct program expenses grow broadly with nominal GDP, with the exception of a number of measures that will no longer be available after a certain date, such as the Clean Electricity, Clean Technology, and Clean Hydrogen investment tax credits and funding to support clean electricity projects, 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 3.3 per cent by 2055-56.

Sensitivity analysis shows that the long-term fiscal projections are robust to some changes to key assumptions (Tables A1.13 and A1.14).

Supplementary Information   
Policy Actions Taken Since Budget 2024

Since 2016, the government has provided a transparent overview of all policy actions taken between budgets and updates. These measures, listed in Table A1.15, ensure that Canadians are well-served by the programs they rely on and that government operations carry on.

Glossary of Abbreviated Titles