Canada's Fiscal Update To Showcase "Better-Than-Expected" Deficits, says BMO
Canada's federal government will release its fiscal update later Tuesday, notes Bank of Montreal (BMO), and the bank looks for it to showcase "better-than-expected" deficits.BMO's Robert Kavcic sayas: "There looks to be some fiscal upside compared to the $65.4 billion deficit estimate for FY26/27 heading into this update. Prior to the oil shock, finances were clearly running better than planned. The deficit was $25.5 billion for the April-to-February period (the first 11 months of the fiscal year), only slightly worse than $19.2 billion a year ago. While year-end adjustments can be hefty, there also looks to be meaningful upside to the estimated $78.3 billion shortfall for FY25/26 which could carry over to the coming fiscal year. The three main components were tracking better than budget estimates, with revenues rising modestly (versus expectations of a drop), interest charges drifting lower (versus expectations of a small rise), and program spending running below a budgeted rise of almost 7%."This extra room is likely why Ottawa hasn't been shy about rolling out some new measures ahead of this update. That includes the temporary removal of the excise tax on fuel, which will cost about $2.4 billion; a more generous GST rebate; as well as HST relief on new housing construction and the infrastructure deal with Ontario."Meanwhile, Prime Minister Mark Carney announced plans to establish the country's first sovereign wealth fund. In a bid to reduce economic dependence on external markets and boost productivity, the "Canada Strong Fund" will invest, along with private-sector partners, in major projects including infrastructure, energy, mining, agriculture, and tech, notes BMO.