MP Report: Federal budget ‘smoke and mirrors’

By Glen Motz on October 29, 2025.

On Nov. 4, after 19 months, the Liberal government will finally table its 2025-2026 budget. However, unlike all of Canada’s previous budgets, Prime Minister Carney intends to split this budget into separate ‘operating’ and capital’ budgets. While that may sound reasonable on the surface, it is sure to create confusion and uncertainty as to Canada’s true fiscal outlook. Or is that the intent?

Finance Canada’s report states that the ‘operating’ budget will include “day-to-day operating spending,” such as “transfers to persons, health and social transfers and the costs of running government operations and services, including salaries and benefits.”

According to the same report, the ‘capital’ budget includes ‘capital investment’ broadly defined as “any government expense or tax expenditure that contributes to public or private sector capital formation, held directly on the government’s balance sheet or on that of a private sector entity, Indigenous community or another level of government.”

Here is where things become sketchy. This expansive definition could allow the government to rack up huge deficit spending on ‘capital’ investments, while balancing the smaller ‘operating’ budget, giving Canadians the impression that all is well.

However, the Parliamentary Budget Officer is far from convinced, as he explained before the House Standing Committee on Finance. “… the definition and categories expand the scope of capital investment beyond the current treatment of capital spending in the Public Accounts of Canada. Based on our initial assessment, we find that the scope is overly expansive and exceeds international practice.”

The PBO’s interpretation was backed up by Kim Moody, former chair of the Canadian Tax Foundation, who explained in a Financial Post article the classic definition of capital assets “is property of a lasting nature acquired for income or investment, rather than for sale in the ordinary course of business.”

Under the revised framework, the definition is so extremely broad, “it is magical … and not reconcilable to the classic definitions.” He also noted that a similar budgetary approach was undertaken over a 12-year period in Britain, resulting in massive overspending and debt accumulation being hidden from taxpayer scrutiny, thus the smoke and mirrors analogy. Wasn’t our current prime minister the Governor of the Bank of England during seven of those years?

While Carney has promised that the “operating budget will be balanced by 20288,” the PBO confirmed that even if it is balanced, the bottom line of Canada’s debt will remain unchanged.

In plain language, Canadian Taxpayers Federation federal director Franco Terrazzano recently wrote, “Carney is including too little in operating and too much in capital spending. That means ‘balancing the operating budget’ holds less weight and adds more debt. It also means that the government is watering down the definition of capital spending.”

What Carney is presenting, “is a blatant attempt to baffle those with low financial literacy,” said Moody – which could be most of us based on the charade being undertaken.

From shifting language on fiscal anchors and broadly defined budgets, it is hard for Canadians to get a clear picture of the country’s financial outlook. Money the government spends, whether classified under ‘capital’ or ‘operating’, comes out of taxpayer pockets. Expanding the massive debt already on the books will fuel inflation, drive up the cost of living even further, and burden future generations for decades.

Conservatives believe taxpayers deserve transparency and accountability as to how and where their money is spent. Shamefully, these vague budget framework categorizations create unnecessary complexities and distractions from the bottom line of Canada’s debt.

When the budget is tabled in November, Conservatives will demand clear answers and honest accounting on behalf of all Canadians.

Glen Motz is the MP for Medicine Hat-Cardston-Warner

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