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Canada's Parliamentary Watchdog Has Examined the Fed Govt's Expenditure Plan and Main Estimates For 2026-27

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The Parliamentary Budget Office (PBO) Thursday said it examined the Canadian federal government's Expenditure Plan and Main Estimates for 2026-27, which supports the appropriation bill that seeks lawmakers' approval of $230.4 billion in budgetary authorities.

Parliament has already provided legislative authority for most of the planned spending ($272.4 billion) for the 2026-27 fiscal year through other pieces of legislation, the PBO noted.

Among highlights, PBO noted the Canada Health Transfer is set to increase by $2.7 billion (5%) to $57.4 billion in 2026-27; and Federal spending on Elderly Benefits is set to rise by $5.7 billion (6.9%) to a total of $88.8 billion in 2026-27. However, PBO said, after tabling of the Main Estimates, the government released its Spring Economic Update 2026, which now forecasts Elderly Benefits to cost 89.3 billion for 2026-27 (a lift of $6.9 billion or 7.6%).

In other highlights, the 2026-27 Main Estimates outline $53.7 billion in forecasted statutory authorities related to servicing public debt, which represents a $4.7 billion increase (9.5%) from the 2025-26 Estimates to date for the preceding year, and includes $48.6 billion for interest on unmatured debt and $5.1 billion for other interest costs.

PBO noted Main Estimates include $14.7 billion in funding for Budget 2025 measures. Also, initiatives related to Rebuilding, Rearming, and Reinvesting in the Canadian Armed Forces represent 71.1% of Budget 2025 proposed spending in these Estimates, including $9 billion to the Department of National Defence (DND) and $675.3 million to the Communications Security Establishment Canada (CES).

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TSX Closer: The Index Rises on Peace-Deal Hopes; Canada Seen As a "Relative Outperformer"

The Toronto Stock Exchange closed higher for only the second session in the last nine on Wednesday as National Bank noted markets are rejoicing over news the United States and Iran are nearing a peace deal, and said even though G7 yields may remain high, the overall economic environment "favours Canada as a relative outperformer" given the nation's inflationary and fiscal standings.The S&P/TSX Composite Index closed up 414.91 points, or 1.2%, to 33,981.82 with most sectors higher, led by Base Metals, up by more than 6%, as gold gained on the possibility of an easing in Middle East tensions. Energy was the biggest loser, down 5%, with oil prices going the opposite direction to gold on the U.S. and Iran news.National Bank noted markets rejoiced this morning over news the U.S. and Iran are nearing a peace deal. But even with today's bond market rally, advanced-economy yields remain considerably higher than they were before the Iran conflict began, the bank said. In fact, it added, the average G7 10- and 30-year borrowing cost ended April at 17-year highs and Canada remains within a few basis points of these levels today.Even if a the combatants reach a permanent de-escalation, the risk that the long-end remains high is very real, National Bank said. Certain members of the group, notably the U.S. and U.K, were already contending with overly high price pressures before a single missile was launched. Several members have been overly generous in their spending by subsidizing energy (or cutting taxes), despite the fragility of their public finances, the bank noted. "The lack of fiscal discipline combined with a high level of geopolitical risk will continue to put upward pressures on term premiums going forward," National Bank added.On the foreign-exchange side, National Bank said markets are increasingly treating the long-term yield moves as risk premiums rather than return premiums. For the U.S. dollar (USD), safe-haven flows are reversing, and the broad USD is now nearly back to where it was before the conflict, leaving it still down 7% from when President Trump first took office. In Japan, higher yields are undermining, rather than restoring, yen support, the bank noted. "While G7 yields may remain high, this environment favours Canada as a relative outperformer given that inflation was much better contained and fiscal policy is on a more sustainable trajectory. We expect some near-term softness through Q2 but look for the currency to strengthen into the second half of the year," National Bank added.Of commodities, West Texas Intermediate crude oil plunged 7% on Wednesday following reports the U.S. and Iran are close to an agreement to end their war, offering up the possibility the Strait of Hormuz could soon reopen. WTI crude oil for June delivery closed down US$7.19 to settle at US$95.08 per barrel after touching US$88.66 in Asia trade, while July Brent oil was down US$9.13 to US$100.74.But gold was higher by midafternoon Wednesday as the U.S. dollar and yields were sharply lower on reports of an Iran peace deal, while U.S. private-sector hiring surged last month. Gold for June delivery was last seen up $138.50 to US$4,707.00 per ounce.

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Treasury

Canada's Provincial Budgets in Pain From Healthcare Costs, Says CIBC

The COVID-19 pandemic may be distant in the rearview mirror, but healthcare costs in Canada are continuing to have an outsized impact on provincial finances, said CIBC.At just over 40% of total expenses in aggregate, healthcare is always the single biggest line item, writes the bank in a note to clients. However, its recent impact has been even greater than that, as it has contributed more than half of the increases in spending seen in the past five years.In addition, these cost increases haven't always been easy to predict, with healthcare also contributing more than 50% of recent spending overshoots relative to initial budget estimates, points out CIBC.Increased health spending needs have often been blamed on inflation, including pay increases for medical staff and population growth. While concerns about inflationary pressures are resurfacing again due to the Middle East conflict, the sharp deceleration in population growth should, in theory, ease the strain on healthcare costs.Unfortunately, however, there is another and potentially larger factor driving costs upwards, one that will get worse before it gets better. That's the increase in healthcare costs that comes from an aging population, as per capita health spending rises exponentially for age brackets above 65, states the bank.If the population continues to age as expected, then healthcare costs could continue to rise more than provinces, on aggregate, are currently projecting, according to CIBC.

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