14-07-2025
Ottawa's 'substantial' borrowing not expected to hit nation's AAA credit ratings: Desjardins
Canada's AAA sovereign credit ratings from two top agencies are safe from Prime Minister Mark Carney's spending promises and tax cuts, according to a new analysis by Desjardins Group.
Since the federal election in April, Carney's Liberal government has announced tax-and-spend plans at a 'torrid pace,' Desjardins deputy chief economist Randall Bartlett wrote in a report published on Monday.
Carney's election platform included $130 billion in new spending over the next four years.
So far, economic relief measures for Canadians have included a personal income tax cut, which took effect on Canada Day, a GST break for certain new home buyers, and cancellation of the capital gains inclusion rate hike.
At the same time, Ottawa plans to raise defence spending to two per cent of GDP this fiscal year, which will increase to five per cent by 2035. The government is also due to spend billions on a plan to double the number of homes built annually.
'With the myriad new spending measures and tax cuts announced since the 2025 federal election, investors are rightly asking: what would this substantial increase in borrowing mean for the Government of Canada's credit rating?,' Bartlett wrote.
'The likely substantial increase in borrowing ahead probably doesn't mean much for the Government of Canada's top‑notch credit rating, at least in the near term.'
Canada holds AAA ratings on its sovereign debt from Standard & Poor's (S&P) and Moody's Ratings. Fitch Ratings reaffirmed its AA+ on Canada's long-term debt last July. The agency cut Canada from AAA in 2020, citing pandemic-related borrowing.
Desjardins analyzed the methodologies used by these agencies, noting such ratings consider both Canada's debt, and its ability to service these obligations, as well as the country's rank relative to other nations.
'Canada's gross general government debt is currently middle of the pack among comparable advanced economies, and is forecast to stay there. So is net general government debt when public pension assets are removed, and it's best in class when they aren't,' Bartlett wrote.
'Meaningfully higher defence spending may erode this advantage, but not as much as it would if other countries weren't also massively expanding their defence budgets.'
Carney says his government will table a budget in the fall. Last month, the Parliamentary Budget Officer estimated the deficit will be $46 billion for the 2024-2025 fiscal year.
BMO Capital Markets warns Canadians should brace for a bigger figure.
'All told, it wouldn't be surprising to see the federal deficit jump towards $80 billion,' senior economist Robert Kavcic wrote in a research note last week.
'Canada's fiscal picture is getting cloudy given that the current government did not table a post-election budget, and the costed platform has been rearranged by the evolving economic outlook and shifting policy priorities,' he added.
'While the underlying theme of the platform still generally holds, the near-term fiscal projections likely won't.'
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on X @jefflagerquist.
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