The Deficit Is $78 Billion. The Debt Grew by $87 Billion. Governments Are Hiding the Difference.

Every province in Canada is running a deficit. That is the number you see in the budget summary and the headline. What you do not see — buried at the back of the document — is how much the government actually borrowed. The two numbers are not the same. They are not close. And the gap between them is the most important fiscal story in the country that almost nobody is reporting.¹

For 2025–26, the federal government reported a deficit of $78.3 billion. Its net debt grew by $86.8 billion. The difference — $8.5 billion — is real borrowing that does not appear in the deficit number. For the provinces collectively, the gap is far worse: combined deficits of $42.1 billion, but net debt growth of $81.4 billion. The provinces borrowed nearly twice what their deficits suggest.

The mechanism is accrual accounting with capital budgeting — a practice that separates operating and capital budgets. The reported deficit covers only the operating side: revenues minus expenses, including amortization of capital projects and debt service charges. The actual borrowing for new capital infrastructure is recorded separately and shows up only in the net debt figure. The deficit you hear about on budget day is, in the words of Lakehead University economist Livio Di Matteo, a “fiscal red herring.”²

Ontario and British Columbia pioneered this approach in the 1990s. Other provinces followed in the 2000s. The federal government expanded its use of capital budgeting in Budget 2025, meaning Ottawa’s reported deficits will increasingly understate its actual borrowing going forward.

The rationale is not unreasonable in theory. A bridge or a hospital has a useful life of decades. Placing the entire cost in one year’s budget creates a spike that distorts the fiscal picture. Spreading the cost over time through amortization aligns the expense with the period of benefit. But the effect in practice is something different: it gives governments an incentive to borrow more, because the full cost of that borrowing is hidden from the headline number that dominates media coverage and public debate.

The provincial data is where the illusion becomes unmistakable. From 1990 to 2025, Canada’s provinces accumulated combined operating deficits of approximately $333 billion. Over the same period, their combined net debt grew by $863 billion — a difference of $530 billion. That is half a trillion dollars in borrowing that never appeared in any deficit headline.³

The province-by-province breakdown is striking. Ontario accumulated $224 billion in deficits from 1990 to 2025. Its net debt grew by $421 billion — nearly double. Quebec ran $53 billion in accumulated deficits. Its net debt grew by $213 billion — four times the deficit figure. British Columbia ran $27 billion in deficits. Net debt grew by $99 billion. Alberta — which prides itself on fiscal conservatism — managed just over $2 billion in accumulated deficits but still added $34 billion to its net debt.⁴

Ronin / Unsplash — Ontario has accumulated $224 billion in provincial deficits since 1990. Its net debt grew by $421 billion over the same period — nearly double. The gap is capital borrowing that never appears in the reported deficit.

Ontario is the clearest case study because it adopted the practice earliest. Di Matteo’s analysis shows that Ontario’s annual reported deficits have fluctuated over 35 years but have not trended significantly upward. The annual additions to net debt, by contrast, show a distinct upward trend. The two lines are diverging — the deficit the government talks about stays relatively flat, while the borrowing it actually does accelerates. In Ontario’s case, the increases in net debt and the growth rate of real per capita GDP have been trending in opposite directions for some time. The province is borrowing more and getting less for it.⁵

Ontario’s current deficit came in at $12.3 billion for 2025–26 — below the projection. The government celebrated this. But the net debt grew by substantially more. The celebration was about a number that does not capture what actually happened to the province’s balance sheet.

The federal government’s adoption of expanded capital budgeting in Budget 2025 means this dynamic will now accelerate at the national level. Until recently, Ottawa’s net debt growth tracked its accumulated deficits relatively closely. That will change. The Carney government’s infrastructure spending plans — Arctic military investment, defence industrial strategy, housing — will increasingly flow through the capital budget, appearing in net debt rather than in the reported deficit.⁶

The political incentive is obvious. A government can announce $35 billion in Arctic spending and $529 million for an auto plant and dozens of other capital projects — and the full borrowing cost will not appear in the deficit figure that dominates Question Period, media coverage, and election debates. It appears only in the net debt, which is reported in a table at the back of the budget document that almost no journalist reads on budget day.

Di Matteo’s proposed solution is straightforward: when budget summaries are presented, alongside the deficit-to-GDP and debt-to-GDP ratios, there should be a line showing the increase in net debt. The media should ask for and report both numbers. Taxpayers should see the full cost of borrowing upfront — not just the amortized portion that governments choose to highlight.

This is not a partisan issue. Every province — Liberal, Conservative, and NDP — has used the same accounting framework to understate its borrowing. The federal government under both Harper and Trudeau maintained relatively transparent alignment between deficits and net debt growth. The Carney government’s move to expanded capital budgeting breaks that alignment going forward.

Canada’s governments reported $42 billion in provincial deficits last year. They actually borrowed $81 billion. The federal government reported a $78 billion deficit. It borrowed $87 billion. Since 1990, the provinces have run $333 billion in combined deficits — but their net debt has grown by $863 billion. The difference is $530 billion in borrowing that never appeared in any deficit headline, any budget-day press conference, or any election debate. Ontario alone has a $197-billion gap between its accumulated deficits and its actual net debt growth. The accounting is legal. The reporting is technically accurate. But the effect is a system in which governments can borrow hundreds of billions of dollars while the number the public sees — the deficit — tells less than half the story. Every Canadian who has looked at a provincial budget and thought the deficit was the whole picture has been looking at a fiscal red herring. The real number is the net debt. It is always larger. It is always growing faster. And it is always on the last page.