-- (Updates with BMO commentary in the fifth to seven paragraphs inclusive)
Canada's federal government now projects a deficit in fiscal year 2025-26 of C$66.9 billion, down from a prior forecast of $78.3 billion, reflecting improved economic growth, it said in a spring economic update Tuesday.
The deficit is set to gradually decline to C$56.2 billion by FY29-30, the government said.
An extra $60.3 billion in revenues has allowed the government to add $37.5 billion in spending, it added
Projected GDP Growth is 1.1% in 2026, 1.9% in each of the next three years, and 1.8% in 2030, the governing Liberals said.
BMO in an overnight note said the federal government "may have revamped its budget cycle, but it kept the same theme going: higher spending washing out better revenues, leading to persistent deficits".
BMO noted the federal government is projecting a $65 billion shortfall for FY26-27, amounting to just under 2% of GDP. "That's only a touch better than last year's estimate, now pegged at $67 billion, with little progress expected as deficits remain sizeable through FY30-31," it said.
The bottom Line for BMO: "The Canadian economy has held up better than expected at the time of the Fall budget. However, the resulting stronger revenues have been offset by higher spending commitments with no path to balance in sight."