By Dean Brown.

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Good morning,

Budget 2026 lands Thursday, and there is one number I can almost guarantee we are going to hear over and over:

Government will defend it.

The opposition will attack it.

And everyone will argue about whether it is too big.

But after digging through the numbers, I think there is a more useful question:

Because the deficit and borrowing are not the same number.

The Parliamentary Budget Officer projects roughly $333.3 billion in cumulative federal deficits over the next five years.

Over that same period, federal borrowing is projected to rise by:

That gap is not an accounting mistake.

It tells us something important about how government finances actually work.

SEE THE PBO NUMBERS BEHIND THE $333B VS. $733B GAP →

A deficit is basically the government’s annual shortfall.

Imagine Ottawa collects:

$550 billion

but records:

$610 billion

in expenses.

That leaves a:

The deficit tells you what happened during a particular year.

Debt is what accumulates over time.

The easiest way to remember it is:

But then there is borrowing.

And that is where things get more interesting.

Suppose Ottawa makes a $10 billion loan.

It still needs $10 billion in cash.

So the government may issue bonds and borrow that money.

But if Ottawa expects the loan to be repaid, it also records a $10 billion financial asset.

That means Ottawa can borrow $10 billion without creating a $10 billion deficit.

The PBO says this is one reason borrowing is projected to run so far above the deficit.

Ottawa is borrowing to finance things such as loans, capital investments, defence procurement and other financial assets.

Those require real cash today without necessarily becoming an expense today under government accounting.

That gives us the cleanest distinction in this entire issue:

The PBO’s current five-year projection is:

Cumulative deficits

versus

Federal borrowing

Difference:

Again, that does not mean Ottawa secretly hid another $400 billion in regular spending.

Some of that borrowing creates an asset on the other side of the balance sheet.

If Ottawa borrows $10 billion and receives a $10 billion loan asset in return, taxpayers have more debt.

But the government also owns something worth money.

The more useful question becomes:

That depends on whether loans get repaid, projects produce value and investments actually strengthen the economy.

You may also hear that Ottawa planned to borrow almost:

That sounds terrifying until you look underneath it.

Budget 2025’s debt-management plan showed about $440 billion was expected to refinance debt already coming due.

Another roughly $149 billion covered the government’s other financial requirements, including items such as Canada Mortgage Bond purchases.

Think of it this way.

Ottawa has a $10-billion bond mature.

It issues another $10-billion bond.

Then it uses that money to pay off the first one.

Gross borrowing:

$10 billion

New debt created:

potentially $0

So gross bond issuance should not be treated as though every dollar represents new government spending.

SEE WHERE OTTAWA’S GROSS BORROWING ACTUALLY GOES →

This is another place where you can hear several numbers and have all of them be technically correct.

At March 31, 2025, the federal balance sheet showed roughly:

Total federal liabilities

Market debt

Federal debt, also called the accumulated deficit

Why the difference?

Because Ottawa also owns assets.

Finance Canada’s federal-debt measure subtracts financial and non-financial assets from total liabilities.

So someone saying:

“Canada has about $1.3 trillion in federal debt”

and someone saying:

“Canada has roughly $1.5 trillion in market debt”

can both be using legitimate numbers.

They are measuring different things.

SEE CANADA’S FEDERAL BALANCE SHEET YOURSELF →

There is no magic number.

A country does not suddenly become unsafe at 50% debt-to-GDP and perfectly healthy again at 49%.

What matters more is whether the debt burden is growing faster than the country’s ability to carry it.

That is why one number worth watching is:

The PBO currently projects federal debt-to-GDP rising from:

40.8% in 2026-27

to:

42.6% by 2030-31

That is not a crisis threshold.

The important part is the direction.

Under the PBO’s current baseline, federal debt is projected to grow faster than the economy.

Interest.

Canada does not have to pay off its entire debt tomorrow.

Government bonds mature continuously and are regularly refinanced.

The problem comes when servicing that debt starts consuming more of the money Ottawa collects.

The PBO expects annual public debt charges to rise from roughly:

in 2026-27

to:

by 2030-31.

By then, debt charges are projected to consume about:

Think about that another way.

Roughly $13.60 of every $100 Ottawa collects could go toward servicing the debt before that money can be used elsewhere.

Health transfers.

Defence.

Infrastructure.

Benefits.

Tax relief.

That is where growing debt stops being an abstract number and starts creating real trade-offs.

This matters too.

In the early 1990s, Ottawa was spending more than 37 cents of every revenue dollar on public debt charges.

We are nowhere close to that today.

Canada also continues to borrow easily in financial markets and holds very strong sovereign credit ratings.

Finance Canada lists AAA ratings from S&P, Moody’s and DBRS, with Fitch at AA+.

So:

is not supported by the evidence.

But neither is:

The more accurate answer is:

Carney’s government wants to distinguish between:

day-to-day operating spending

and

investment that creates long-term assets or economic capacity.

There is logic to that.

Borrowing $5 billion for infrastructure that lasts decades is not necessarily the same thing as borrowing $5 billion every year to cover an ongoing operating expense.

But there is an obvious problem.

The PBO says more than 80% of new measures announced since June have been classified as capital.

That matters because capital spending sits outside Ottawa’s operating-balance target.

The PBO currently projects the operating balance reaching a surplus while the overall government continues running deficits and increasing debt.

That means:

does not mean:

And that is where the real Budget 2026 debate begins.

The deficit number is only the surface.

Ottawa can potentially meet its new operating-budget target while continuing to borrow heavily.

Whether that is responsible depends heavily on what the government is calling an investment and what Canadians actually get in return.

In Plus, I dug into:

why $333 billion in deficits can become $733 billion in borrowing

what Ottawa is classifying as capital

why a balanced operating budget does not mean the federal budget is balanced

whether Canada really has the lowest debt in the G7

why gross and net debt tell completely different stories

what bond markets actually care about

and

the six numbers I would check before believing anyone’s Budget Day spin

SEE WHAT THE BORROWING NUMBERS ACTUALLY TELL US →

Do not look only at the headline deficit.

I would watch four things.

Is federal debt still rising faster than Canada’s economy?

How quickly are public debt charges moving toward $80 billion a year?

How much cash does Ottawa need to raise beyond the reported deficit?

Is the government reserving that label for genuinely long-lived investments?

Or stretching it to make the operating numbers look better?

Those four numbers will tell us much more about Canada’s fiscal direction than one big deficit headline.

Government debt debates usually collapse into two camps.

One says:

Deficits are always bad.

The other says:

Canada is rich and borrows in its own currency. Stop worrying about it.

Neither tells us very much.

Borrowing can make sense.

A country facing housing shortages, weak productivity, defence needs and infrastructure gaps may have good reasons to invest.

But calling something an investment does not automatically make it a good one.

If taxpayers borrow $10 billion for something that creates $20 billion in long-term value, that can be a very good trade.

If it produces almost nothing, taxpayers still owe the $10 billion.

Plus interest.

That is the standard I’ll be using when the budget lands Thursday.

Until next time,

P.S. When Budget 2026 drops, ignore the first politician who tells you the deficit number proves everything. I’ll be looking at the borrowing, debt-to-GDP and interest bill too.