OTTAWA — A new report criticizes the federal government’s comprehensive spending review, calling it too narrow and ineffective in addressing the country’s fiscal challenges. The report, set to be released Thursday by the C.D. Howe Institute, argues that the review will only encompass about one-third of all federal program spending. It estimates that the review will yield savings of no more than $22 billion by the fiscal year 2028-29.

This projected savings falls significantly short of the $50 billion needed to stabilize the federal government’s finances and halt the rising debt-to-GDP ratio. The report, titled “Federal Expenditure Review: Welcome, But Flawed,” highlights that a limited focus on certain spending areas diminishes opportunities to enhance the quality of expenditures. It warns that some programs facing cuts may be more effective than those that remain untouched.

John Lester, the report’s author and a former federal government economist, emphasized the need for a broader review. He stated, "It’s better to review broadly and eliminate programs that aren’t working well, instead of across-the-board cuts that don’t assess program success." Lester noted that governments often prefer the easier, across-the-board approach because it can produce quicker results, but he stressed the importance of evaluating programs thoroughly.

Lester recommends that the government expand its review to include the remaining two-thirds of program spending. He also suggests implementing a multi-year cap on operating costs to achieve immediate fiscal restraint and assessing programs based on their value for money. Additionally, he calls for clear communication and transparent goals to foster public consensus on the proposed changes.

The spending review comes in the wake of significant deficits that have burdened Ottawa and future generations with substantial debt. An earlier report from the C.D. Howe Institute indicated that the Carney government is projected to face a deficit exceeding $92 billion this fiscal year, nearly double previous forecasts from a non-partisan parliamentary officer.

Just four months ago, the Parliamentary Budget Officer had estimated a federal deficit of $50.1 billion for the current fiscal year, a slight improvement from the $61.9 billion shortfall recorded in 2023-24. The PBO also indicated that deficits would continue to decline in the following years unless new measures were introduced to cut revenue or increase spending.

If the projected deficit materializes, it would mark the second-largest deficit in Canadian history, surpassed only by the $327.7 billion deficit recorded during the pandemic year of 2020-21. The report also forecasts deficits exceeding $77 billion annually over the next four years, representing significant increases from earlier expectations.

The decline in Ottawa’s fiscal health is attributed to rising defense spending, the economic impact of tariffs, cuts to personal income tax and the GST for first-time homebuyers, and the removal of the digital services tax. The federal government’s financial situation remains uncertain, as it has not released a budget in over a year. This year, the government opted to delay its annual budget until the fall, more than halfway through the fiscal year.