In the fourth quarter, the Canadian general government recorded a deficit of $20.8 billion, an increase of $6.7 billion compared with the same quarter in 2024. This was driven by a combination of slower revenue growth (+2.4%) and higher spending (+4.3%). Excluding social security funds, the deficit stood at $27.9 billion, up $11.0 billion from the $16.9 billion deficit recorded in the fourth quarter of 2024, reported Statistics Canada on Monday.
“The federal government deficit edged up (+$1.3 billion) to reach $12.3 billion in the fourth quarter of 2025, compared with a deficit of $11.1 billion recorded in the same quarter of 2024. The deficit of the provincial and territorial governments increased sharply (+$10.3 billion) to $16.0 billion in the fourth quarter of 2025, as revenue growth (+$1.2 billion) was dampened by a decline in property income. Growth in expenses (+$11.4 billion) outpaced revenue growth, as compensation of employees, use of goods and services and capital transfers to businesses grew significantly,” explained Statistics Canada.
“As a percentage of nominal gross domestic product (GDP), the Canadian general government deficit stood at 2.5% in the fourth quarter of 2025, significantly higher than the deficit of 1.7% observed in the fourth quarter of 2024. The federal government posted a deficit equivalent to 1.5% of GDP in the fourth quarter of 2025, while provincial and territorial governments recorded a deficit of 1.9% of GDP, up from 0.7% in the fourth quarter of 2024. The surplus of local governments was 0.1% of GDP in the fourth quarter of 2025, while the surplus of the social security funds was 0.8%.”
Federal government deficit increases amid slower revenue growth
Statistics Canada said the federal government’s deficit (+$1.3 billion) rose slightly in the fourth quarter of 2025 compared with the same quarter one year earlier, as growth in expenses (+$2.3 billion; +1.7%) outpaced modest gains in revenue (+$1.0 billion; +0.8%). Tax revenue (-$0.2 billion; -0.2%) edged down in the fourth quarter of 2025, amid slow nominal GDP growth and lower taxation rates slowing income growth.
“Taxes on income, profits, and capital gains rose by $1.3 billion (+1.5%) in the fourth quarter, while taxes on goods and services fell by $1.9 billion (-8.7%), primarily due to the abolition of the federal government’s consumer carbon tax. Taxes on international trade and transactions increased by $0.4 billion year over year in the fourth quarter, a slower pace from the previous quarter (+$1.5 billion) due to the removal of counter tariffs on most US imports effective September 1, 2025,” it said.
“Federal government expenses rose by $2.3 billion (+1.7%) in the fourth quarter. Year over year, social benefits increased by $0.2 billion, as Employment Insurance benefits rose by $1.0 billion (+19.2%) and Old Age Security benefits increased $0.4 billion (+2.2%), largely counterbalanced by the elimination of the Canada Carbon Rebate. Meanwhile, interest expenses grew by $0.8 billion (+6.5%), while subsidies decreased $2.0 billion.”
Canadian general government net debt decreases
Statistics Canada said the Canadian general government net debt decreased by $36.2 billion (-6.7%) year over year to $503.3 billion in the fourth quarter of 2025, as growth in the value of financial assets (+$278.7 billion; +8.5%) outpaced growth in the market value of liabilities (+$242.5 billion; +6.3%). Excluding social security funds, whose assets are earmarked to pay future benefits, net debt increased by $57.2 billion (+4.1%) to reach $1,445.3 billion.
“In the fourth quarter, the federal government’s net debt increased by $37.3 billion (+3.8%) from a year earlier and stood at $1,010.2 billion. The market value of the federal government total liabilities increased by $122.7 billion (+6.9%), driven by an increase in the value of its outstanding debt securities (+$114.8 billion; +8.3%), while its financial assets increased by $85.4 billion (+10.6%). Meanwhile, the net debt of provincial, territorial, and local governments increased by $19.9 billion (+4.8%) to reach $435.1 billion,” it said.
“As a percentage of nominal GDP, Canadian general government net debt declined to 15.5% at the end of the fourth quarter of 2025, compared to 17.4% at the end of the fourth quarter of 2024. Excluding social security funds, the ratio of net debt-to-GDP was 44.6% at the end of the fourth quarter of 2025, barely changed from 44.7% one year earlier. The net debt-to-GDP ratio of the federal government was 31.1% at the end of the fourth quarter of 2025, while that of provincial, territorial and local governments stood at 13.4%.”
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Entrepreneur. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 and 2024 as one of the top business journalists in the world by PR News. He was also named by RETHINK to its global list of Top Retail Experts 2024, 2025 and 2026.
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