Financial statements discussion and analysis

Public Accounts of Canada 2025 Volume I—Top of the page Navigation

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Introduction

The Public Accounts of Canada is a major accountability report of the Government of Canada. This section, together with the other sections in this volume and in Volumes II and III of the Public Accounts of Canada, provides detailed supplementary information in respect of matters reported in the audited consolidated financial statements in Section 2 of this volume. Supplementary discussion and analysis of the financial results can be found in the Annual Financial Report of the Government of Canada—Fiscal Year 2024–2025, available on the Department of Finance Canada's website.

The consolidated financial statements and financial statements discussion and analysis have been prepared under the joint direction of the Minister of Finance and National Revenue, the President of the Treasury Board, and the Receiver General for Canada. Responsibility for the integrity and objectivity of the consolidated financial statements and financial statements discussion and analysis rests with the government. A glossary of terms used in this financial statements discussion and analysis is provided at the end of this section.

Discussion and analysis

Economic context¹

The Canadian economy demonstrated resilience in 2024, with growth picking up over the course of the year, supported by robust domestic demand, lower interest rates and continued population gains. Inflation returned to the Bank of Canada's target of 2 per cent in August 2024 and has remained within the 1 to 3 per cent target range since. Overall, real GDP rose 1.6 per cent in 2024, with the economy achieving a soft landing following the period of higher interest rates. Nominal GDP, the broadest measure of the tax base, grew by 4.7 per cent in 2024, marking a return to a more typical pre-pandemic growth rate. However, early in 2025, successive measures by the United States (U.S.) to restrict trade and rising uncertainty caused a material slowdown in Canadian economic activity, leading to a downwardly revised outlook.

Labour market conditions eased throughout 2024, largely due to softer hiring demand coinciding with continued population growth. The economy added 382,000 jobs over the year, compared to 593,000 in 2023. The unemployment rate increased from 5.4 per cent in 2023 to 6.4 per cent on average in 2024. Job vacancies declined from their post-pandemic highs, returning closer to historical norms. While nominal wage growth began to moderate, falling inflation allowed real wages to increase by 2.4 per cent on average in 2024.

Headline inflation averaged 2.4 per cent in 2024, down from 3.9 per cent in 2023. The disinflation process was largely driven by easing goods prices, although shelter costs remained elevated. The share of Consumer Price Index components growing above 3 per cent returned to near normal levels. The temporary Goods and Services Tax/Harmonized Sales Tax (GST/HST) holiday and the elimination of the consumer carbon tax on fuel products further contributed to lower inflation in early 2025.

Successive rounds of U.S. trade-restrictive measures and the associated uncertainty began to materially affect the Canadian economy in early 2025. In the first quarter, real GDP grew at a solid 2.2 per cent annualized rate, as exports were pulled forward in anticipation of new tariffs. However, domestic demand softened, with consumers delaying large purchases, a cooling housing market, and growing uncertainty weighing on business investment. Employment growth slowed, and the unemployment rate increased to 6.9 per cent as of June 2025.

Looking ahead, the Canadian economic outlook has been revised downward, reflecting the adverse effects of U.S. tariffs and weaker global growth prospects. Real GDP growth is expected to moderate in 2025 before gradually improving in 2026 and reaching around 2 per cent in 2027. Inflation is projected to remain near the 2 per cent target, though the outlook is subject to considerable uncertainty. While new tariffs and elevated input costs could place upward pressure on inflation, these effects are expected to be counterbalanced by a slowing economy and rising unemployment, which should help ease underlying price pressures.

This outlook is based on the most recent Department of Finance survey of private sector economists, which informs the government's economic and fiscal planning. The survey process—used since 1994—introduces a degree of independence and transparency into the federal forecasting framework and helps ensure that budgetary projections are based on a balanced and credible view of the economic environment.

The budgetary balance

The budgetary balance, or annual operating surplus/deficit, is the difference between the government's revenues and total expenses over a fiscal year. It is one of the key measures of the government's annual financial performance. The government posted an annual operating deficit of $36.3 billion in 2025, compared to a deficit of $61.9 billion in 2024.

The annual operating deficit before net actuarial losses represents the difference between the government's revenues and expenses excluding net actuarial losses. By excluding the impact of changes in the estimated value of the government's obligations and assets for public sector pensions and other employee and veteran future benefits recorded in previous fiscal years, this measure is intended to present a clearer picture of the results of government operations during the current fiscal year. The annual operating deficit before net actuarial losses stood at $32.3 billion in 2025, compared to $54.4 billion in 2024.

The following graph shows the government's budgetary balance since 1984, as well as the budgetary balance before net actuarial losses since 2009 (earliest data available). To enhance the comparability of results over time and across jurisdictions, the budgetary balance and its components are presented as a percentage of GDP. In 2025, the annual operating deficit was 1.2% of GDP, compared to a deficit of 2.1% of GDP a year earlier. The annual operating deficit before net actuarial losses was 1.0% of GDP, compared to a deficit of 1.9% of GDP a year earlier.

Annual operating surplus/deficit

Revenues were up $51.4 billion, or 11.2%, from the prior year to $511.0 billion, primarily reflecting an increase in personal income tax, corporate income tax, and other revenues. Stronger employment and wage growth as well as timing and likely behavioural impacts, such as a pull-forward impact in reaction to the announced increase in the capital gains inclusion rate, which was subsequently announced to be deferred and annulled, supported revenue gains in personal and corporate income tax streams.

Total expenses were up $25.9 billion, or 5.0%, from the prior year to $547.3 billion. Program expenses excluding net actuarial losses increased by $23.2 billion, or 5.0%, to $489.9 billion, reflecting increases in all major categories of transfer payments, offset in part by a decrease in other expenses.

Net actuarial losses decreased by $3.5 billion, or 46.3%, from the prior year to $4.0 billion, reflecting both the amortization of gains arising from actuarial valuations of the government's pension and other employee future benefit plans as at March 31, 2024, which began in 2025, and the end of the amortization of certain prior years' net actuarial losses in 2024.

Public debt charges increased by $6.1 billion, or 13.0%, from the prior year to $53.4 billion, due to higher average effective rates on the outstanding stock of marketable bonds and an increase in the stock of marketable bonds.

Revenues

Federal revenues can be broken down into five main categories: income tax revenues, other taxes and duties, Employment Insurance (EI) premium revenues, pollution pricing proceeds, and other revenues.

Within the income tax category, personal income tax revenues, at $234.3 billion, are the largest source of federal revenues and accounted for 45.9% of total revenues in 2025 (down from 47.4% in 2024). Corporate income tax revenues, at $97.0 billion, are the second largest source of revenues and accounted for 19.0% of total revenues in 2025 (up from 17.9% in 2024). Non-resident income tax revenues, at $13.5 billion, are a comparatively smaller source of revenues, accounting for only 2.6% of total revenues in 2025 (down from 2.7% in 2024).

Other taxes and duties consist of revenues from the GST, energy taxes, customs import duties, and other excise taxes and duties. The largest component of this category—GST revenues—stood at $52.5 billion, or 10.3% of all federal revenues in 2025 (down from 11.2% in 2024). The remaining components of other taxes and duties stood at $19.4 billion, or 3.8% of total federal revenues (down from 3.9% in 2024).

EI premium revenues, at $31.5 billion, accounted for 6.2% of total federal revenues in 2025 (down from 6.4% in 2024).

Pollution pricing proceeds from the federal carbon pollution pricing framework, at $13.6 billion, accounted for 2.7% of total federal revenues in 2025 (up from 2.3% in 2024). The government ceased the application of the federal fuel charge effective April 1, 2025.

Other revenues are made up of three broad components: net income from enterprise Crown corporations and other government business enterprises; other program revenues from the sales of goods and services, and other miscellaneous revenues; and foreign exchange revenues and return on investments. Other revenues, at $49.2 billion, accounted for 9.6% of total federal revenues in 2025 (up from 8.1% in 2024).

Composition of revenues for 2025

Note: Numbers may not add to 100% due to rounding.

Revenues compared to 2024

Total revenues amounted to $511.0 billion in 2025, up $51.4 billion, or 11.2%, from 2024. The following table compares revenues for 2025 to 2024.

• Personal income tax revenues increased by $16.6 billion in 2025, or 7.6%, driven predominantly by growth in employment and wages, while gains in investment income also provided support.
• Corporate income tax revenues increased by $14.5 billion, or 17.6%, likely reflecting tax filers' reaction to the Budget 2024 proposal to increase the capital gains inclusion rate (pull-forward effect), particularly in the financial sector.
• Non-resident income tax revenues are paid by non-residents on Canadian-sourced income, which can include dividends and interest income. These revenues increased by $1.0 billion, or 7.9%, reflecting strong investment income gains.
• Other taxes and duties increased by $2.5 billion, or 3.6%, due mainly to growth in GST revenues, which increased by $1.1 billion in 2025, or 2.1%, reflecting growth in retail sales that offset the impact of temporary GST relief. Energy taxes grew by $0.1 billion, or 0.9%, reflecting weak growth in motive fuel consumption. Customs import duties increased by $0.7 billion, or 12.4%, due in part to the application of Canada's countermeasures in response to U.S. tariffs. Other excise taxes and duties increased by $0.7 billion, or 9.6%, driven by increased revenue from excise taxes on tobacco sales and a higher Air Travellers Security Charge.
• EI premium revenues increased by $2.0 billion, or 6.7%, reflecting a higher premium rate and a higher number of persons employed.
• Proceeds from the federal carbon pollution pricing framework increased by $3.0 billion, or 29.0%, reflecting a higher carbon pollution price of $80 per tonne in 2025 versus $65 per tonne in the year prior. As of April 1, 2025, the government ceased the application of the federal fuel charge in all jurisdictions where it was applied, with applicable fuel charge rates set to zero.
• Other revenues increased by $11.8 billion, or 31.6%, largely reflecting higher net profits from enterprise Crown corporations, higher interest and penalty revenues, growth in returns on investments, and higher revenues from the sales of goods and services.

The revenue ratio—revenues as a percentage of GDP—compares the total of all federal revenues to the size of the economy. This ratio is influenced by changes in statutory tax rates and by economic developments. The ratio stood at 16.6% in 2025 (up from 15.7% in 2024), reflecting transitory factors such as tax filers' likely reaction to the Budget 2024 proposal to increase the capital gains inclusion rate and the application of Canada's countermeasures in response to U.S. tariffs.

Revenue ratio

Expenses

Federal expenses can be broken down into four main categories: transfer payments, which account for the majority of all federal spending, other expenses, public debt charges, and net actuarial losses.

Transfer payments are likewise classified under four categories:

• Major transfers to persons, at $131.6 billion, made up 24.0% of total expenses in 2025 (up from 23.1% in 2024) and are statutory. This category consists of elderly benefits, EI benefits and support measures, children's benefits, and COVID-19 income support for workers (the Canada Emergency Response Benefit, the Canada Recovery Benefit, the Canada Recovery Sickness Benefit, the Canada Recovery Caregiving Benefit, and the Canada Worker Lockdown Benefit) introduced under Canada's COVID-19 Economic Response Plan. Of this, COVID-19 income support for workers accounted for a $2.2-billion, or 0.4%, decrease in total expenses in 2025 due to redeterminations of benefit overpayments, which are accounted for as a reduction in expenses (whereas it contributed a 0.9% reduction of total expenses in 2024).
• Major transfers to other levels of government—which include the Canada Health Transfer, the Canada Social Transfer, Canada-wide early learning and child care transfers, health agreements with provinces and territories, fiscal arrangements (Equalization, transfers to the territories, a number of smaller transfer programs, and the Quebec Abatement), and the Canada Community-Building Fund transfers—made up $105.1 billion, or 19.2%, of total expenses in 2025 (unchanged from 2024).
• Pollution pricing proceeds returned, at $15.6 billion, made up 2.8% of expenses (up from 1.9% in 2024). These transfers consist of payments that return direct proceeds from the federal carbon pollution pricing system to the jurisdictions where they were collected, as required under the Greenhouse Gas Pollution Pricing Act.
• Other transfer payments, which include transfers to Indigenous Peoples, assistance to farmers, students and businesses, support for research and development, and international assistance, made up $107.1 billion, or 19.6%, of expenses (up from 18.4% in 2024).

Other expenses, which represent the operating expenses of the government's 137 departments, agencies, and consolidated Crown corporations and other entities, accounted for $130.5 billion, or 23.8%, of total expenses in 2025 (down from 26.9% in 2024).

Public debt charges, at $53.4 billion, made up 9.8% of total expenses in 2025 (up from 9.1% in 2024).

Net actuarial losses, at $4.0 billion, made up the remaining 0.7% of total expenses in 2025 (down from 1.4% in 2024).

Composition of expenses for 2025

Note: Numbers may not add to 100% due to rounding.

Expenses compared to 2024

Total expenses amounted to $547.3 billion in 2025, up $25.9 billion, or 5.0%, from 2024. The following table compares total expenses for 2025 to 2024.

• Major transfers to persons increased by $10.9 billion, or 9.0%, in 2025. Elderly benefits increased by $4.3 billion, or 5.6%, reflecting growth in the number of recipients and changes in consumer prices, to which benefits are fully indexed. EI benefits and support measures increased by $1.8 billion or 7.6%, largely reflecting a higher unemployment rate. Children's benefits increased by $2.2 billion, or 8.5%, mainly reflecting the indexation of benefits to consumer prices and an increase in the number of eligible children. COVID-19 income support for workers resulted in a $2.7-billion year-over-year increase in expenses, reflecting a decrease in redeterminations of benefits.
• Major transfers to other levels of government increased by $4.9 billion in 2025, or 4.9%, primarily reflecting $4.7 billion in legislated growth under the Canada Health Transfer, the Canada Social Transfer, Equalization transfers, and Territorial Formula Financing and a $1.1-billion increase to Canada-wide early learning and child care transfers, offset in part by higher recoveries under the Quebec Abatement, and a decrease under other fiscal arrangements.
• Proceeds returned from the federal carbon pollution pricing framework increased by $5.7 billion, or 58.2%, largely reflecting the introduction of the Canada Carbon Rebate for Small Businesses and an increase in the rate of the Canada Carbon Rebate for individuals.
• Other transfer payments increased by $11.2 billion, or 11.7%, in 2025. This increase primarily reflects higher transfers with respect to Indigenous Peoples, as well as a number of other factors including the rollout of transfers under the Canadian Dental Care Plan, an increase in Canada Workers Benefit payments, growth in transfers under the Canada Greener Homes Grant, and an increase in transfers in support of immigration. These increases were offset in part by decreases in agricultural supports and disaster assistance.
• Other expenses of departments, agencies, and consolidated Crown corporations and other entities, excluding net actuarial losses, decreased by $9.6 billion, or 6.8%. This decrease was due mainly to lower claims expenses and public health expenses in 2025, offset in part by higher personnel costs and Crown corporation expenses.
• Public debt charges increased by $6.1 billion, or 13.0%, primarily reflecting higher average effective rates on the outstanding stock of marketable bonds, as well as an increase in the stock of marketable bonds.
• Net actuarial losses, which reflect changes in the value of the government's obligations and assets for public sector pensions and other employee and veteran future benefits recorded in previous fiscal years, decreased $3.5 billion, or 46.3%, reflecting both the amortization of gains arising from updated actuarial valuations of the government's pension and other employee future benefit plans as at March 31, 2024, and the end of the amortization of certain prior years' net actuarial losses.

The expense ratio—expenses as a percentage of GDP—compares the total of all federal expenses to the size of the economy. This ratio is influenced by policy actions, economic developments, and changes in interest rates. The ratio stood at 17.8% in 2025, unchanged from 2024.

Expense ratio

Comparison of actual results to projections

Comparison to December 2024 Fall Economic Statement

The $36.3-billion deficit recorded in 2025 was $12.0 billion lower than the $48.3-billion deficit projected in the December 2024 Fall Economic Statement.

• Overall, revenues were $15.7 billion, or 3.2%, higher than forecast. This variance from forecast was due mainly to stronger-than-expected tax revenues, particularly personal and corporate income tax revenues, reflecting strong labour market performance and wage growth, and a likely pull-forward impact from the announced increase to the capital gains inclusion rate, which was subsequently announced to be deferred and annulled.

• Program expenses, excluding net actuarial losses, were $4.1 billion, or 0.9%, higher than projected, largely a result of higher-than-anticipated provisions for claims, and revised allowances for doubtful accounts for receivables and loans, including those related to redeterminations of benefits delivered during the COVID-19 pandemic and Canada Emergency Business Account (CEBA) loans. Such valuations typically occur after the end of the fiscal year and often incorporate information available subsequent to March 31.
• Public debt charges were $0.3 billion, or 0.6%, lower than projected.
• Net actuarial losses were $26 million lower than projected.

Comparison to April 2024 budget plan

The 2025 budgetary deficit of $36.3 billion was $3.5 billion lower than the $39.8-billion deficit projected for 2025 in the April 2024 federal budget.

Revenues were $13.1 billion, or 2.6%, higher than forecast in the April 2024 budget, driven by higher income tax revenues, most likely due to behavioural impacts of the announced increase in the capital gains inclusion rate, and broad-based gains in other revenues.

Total expenses, excluding net actuarial losses, were $8.7 billion, or 1.6%, higher than projected in the April 2024 budget, with program expenses $9.4 billion higher than forecast and public debt charges $0.7 billion lower than forecast.

• Major transfers to persons were $3.7 billion lower than forecast, largely attributable to redeterminations of COVID-19 income support benefits for workers and lower EI benefits resulting from lower realized unemployment figures than projected.
• Major transfers to other levels of government were $0.4 billion lower than projected as a Net Profit Interest transfer was not made in 2025 and the unused portion of 2021 funding provided to Alberta for the remediation of inactive wells was returned.
• Pollution pricing proceeds returned were $0.7 billion higher than projected, primarily due to a higher Canada Carbon Rebate for individuals than projected.
• Direct program expenses, which comprise other transfer payments, capital amortization expenses, and other operating costs, were $12.8 billion higher than projected in the April 2024 budget. The variance from forecast is largely a result of developments after the budget, including higher-than-anticipated expenses related to Indigenous claims, higher bad debt expense on taxes receivable, higher pension and other future benefits expenses based on updated actuarial projections, as well as higher allowances for COVID-19 benefit overpayments receivable and CEBA loans.
• Public debt charges were $0.7 billion lower than expected in the April 2024 budget, largely reflecting lower-than-forecast interest rates on government bonds and treasury bills, lower Consumer Price Index adjustments on Real Return Bonds, and lower-than-forecast net interest on the government's pensions and other future benefits, offset in part by higher financial requirements.
• Net actuarial losses were $1.0 billion higher than projected, reflecting lower-than-forecast gains resulting from actuarial valuations prepared for the Public Accounts of Canada 2024, which were amortized starting in 2025.

Accumulated deficit

The accumulated deficit is the difference between the government's total liabilities and total assets. Put another way, it is equal to the accumulated operating deficit (the sum of annual operating deficits and surpluses since Confederation) plus accumulated remeasurement gains and losses.

Remeasurement gains and losses represent unrealized gains and losses due to changes in the fair value of derivatives and certain other financial instruments held by the government, excluding gains and losses due to changes in foreign exchange rates which are charged directly to the budgetary balance. Fair values of derivatives reported in the government's financial statements represent estimated amounts the government would have to receive or pay, based on market factors, if the agreements were terminated on March 31. The government uses derivatives, such as swap agreements and foreign exchange forward agreements, to manage financial risks and as a general practice holds these contracts to maturity.

Net remeasurement gains and losses also include other comprehensive income or loss reported by enterprise Crown corporations and other government business enterprises. Other comprehensive income or loss consists of certain unrealized gains and losses on Crown corporations' financial instruments and actuarial gains and losses related to their pensions and other employee future benefit plans.

The government began reporting remeasurement gains and losses in 2023 with the adoption of a new suite of financial instruments standards issued by the Public Sector Accounting Board. In accordance with those standards, remeasurement gains and losses are not included in the government's annual budgetary balance and are instead recorded directly as part of the accumulated deficit.

The accumulated deficit increased by $30.3 billion in 2025, reflecting the $36.3-billion budgetary deficit, offset in part by $6.0 billion in net remeasurement gains. As a percentage of GDP, the accumulated deficit decreased 0.9 percentage points to 41.2% of GDP at March 31, 2025.

Graph - Accumulated deficit

Measures of government debt

There are several generally accepted measures of government debt.

• Total liabilities of the government consist of unmatured debt (i.e., debt issued on the credit markets), pension and other future benefit liabilities, other interest-bearing liabilities, accounts payable and accrued liabilities, foreign exchange accounts liabilities, and derivative liabilities.
• Net debt is equal to the total liabilities of the government less its financial assets. Financial assets include cash and cash equivalents, accounts receivable, foreign exchange accounts assets, derivative assets, loans, investments and advances, and public sector pension assets.
• The accumulated deficit is equal to total liabilities less total assets—both financial and non-financial. Non-financial assets include primarily tangible capital assets, such as land and buildings, as well as inventories, and prepaid expenses. The accumulated deficit is the federal government's main measure of debt.

Measures of Government debt chart

The following sections provide more details on each of these components.

Accounts payable and accrued liabilities

The government's accounts payable and accrued liabilities consist of amounts payable related to tax based on assessments and estimates of refunds owing for tax assessments not completed by year-end; provisions for contingent liabilities, including for guarantees provided by the government and claims and pending and threatened litigation; environmental liabilities and asset retirement obligations, which include estimated costs related to the remediation of contaminated sites and the future retirement of certain tangible capital assets; deferred revenues; and other accounts payable and accrued liabilities. Other accounts payable and accrued liabilities include items such as accrued salaries and benefits; amounts payable to provinces, territories and Indigenous governments for taxes collected and administered on their behalf in accordance with tax agreements; and amounts owing at year-end pursuant to contractual arrangements or for work performed or goods received.

Accounts payable and accrued liabilities by category for 2025

Note: Numbers may not add to 100% due to rounding.

At March 31, 2025, accounts payable and accrued liabilities totalled $259.7 billion, down $4.3 billion from March 31, 2024. This decline reflects decreases in other accounts payable and accrued liabilities and provisions for contingent liabilities, offset in part by increases in amounts payable related to tax, environmental liabilities and asset retirement obligations, and deferred revenues.

• Other accounts payable and accrued liabilities decreased by $11.5 billion in 2025. Within this category, accounts payable decreased by $6.1 billion, reflecting several factors, including payments made in 2025 for transfers accrued at the end of 2024 under a number of programs, including the Dairy Direct Payment Program, and funding under the $2.5-billion tailored bilateral health agreements and early learning and child care agreements, which were signed with provinces and territories late in 2024. The decrease also reflects the payment of settled claims, the payment of contractor holdbacks for projects under construction, adjustments to estimated amounts owing for disaster assistance, and year-over-year differences in the timing and payment of invoices for goods and services. Liabilities under provincial, territorial and Indigenous tax agreements decreased by $5.5 billion, largely reflecting the difference between estimated HST owing to provinces and actual payments made to provinces. These decreases were offset in part by a $0.2-billion increase in notes payable to international organizations, reflecting the issuance of notes payable to the European Bank for Reconstruction and Development.
• Provisions for contingent liabilities decreased by $1.9 billion, reflecting settlements during the year, offset in part by the addition of new claims and revaluations of existing claims.
• Amounts payable related to tax increased by $7.1 billion in 2025, from $87.7 billion at March 31, 2024, to $94.8 billion at March 31, 2025. This increase largely reflects higher accrued payables related to individual and corporate income tax.
• Environmental liabilities increased by $0.3 billion in 2025, reflecting a $1.4-billion increase in liabilities due to revised estimates of remediation costs, offset in large part by a $1.2-billion decrease in the liabilities for remediation work undertaken during the year. Asset retirement obligations increased by $1.0 billion in 2025, largely reflecting year-over-year changes in estimated costs and the timing of expenditures.
• Deferred revenues increased by $0.7 billion in 2025, largely reflecting the addition of proceeds received from the auction of spectrum licenses in the 3800 MHz band.

Accounts payable and accrued liabilities have increased significantly in recent years, from $123.4 billion at March 31, 2017, to $259.7 billion at March 31, 2025. This increase is due in large part to growth in amounts payable related to tax, reflecting growth in the tax base; an increase in accounts payable and accrued liabilities pursuant to contractual agreements, for work performed, goods received, and services rendered; and increased provisions for contingent liabilities.

Graph - Accounts payable and accrued liabilities

Note 1: Other includes provisions for environmental liabilities and asset retirement obligations and deferred revenues.

Interest-bearing debt

Interest-bearing debt includes unmatured debt, or debt issued on the credit markets, pension and other future benefit liabilities, and other liabilities.

• Unmatured debt, which includes fixed-coupon marketable bonds, Real Return Bonds, treasury bills, foreign-currency-denominated debt, and obligations related to capital leases and public-private partnerships, amounted to 79.5% of interest-bearing debt at March 31, 2025.
• Pension and other future benefit liabilities include obligations for: federal public sector pensions sponsored by the government; disability and associated benefits available to war veterans, current and retired members of the Canadian Forces and the Royal Canadian Mounted Police, their survivors and dependants; health care and dental benefits available to retired employees and their dependants; accumulated sick leave entitlements; severance benefits; workers' compensation benefits; and other future benefits sponsored by some consolidated Crown corporations and other entities. Liabilities for public sector pensions made up 8.7% of interest-bearing debt, and other employee and veteran future benefits accounted for an additional 11.4% of interest-bearing debt.
• The remaining 0.4% of interest-bearing debt represents other interest-bearing liabilities of the government, which include deposit and trust accounts and other specified purpose accounts.

The share of total interest-bearing debt represented by unmatured debt had been declining since the mid-1990s, as the government was able to retire some of this debt. This trend reversed in 2009 due to the increase in financial requirements stemming from the recession and stimulus measures introduced to mitigate its impacts, as well as an increase in borrowings under the consolidated borrowing framework introduced in 2008. Under the consolidated borrowing framework, the government finances all of the borrowing needs of Canada Mortgage and Housing Corporation (CMHC), the Business Development Bank of Canada and Farm Credit Canada through direct lending in order to reduce overall borrowing costs and improve the liquidity of the government securities market. More recently, increased financial requirements due to the COVID-19 pandemic and Canada's Economic Response Plan contributed to a further increase in unmatured debt as a portion of interest-bearing debt.

Graph - Interest-bearing debt by category for 2025

Note: Numbers may not add to 100% due to rounding.

At March 31, 2025, interest-bearing debt totalled $1,869.3 billion, up $123.8 billion from March 31, 2024. Within interest-bearing debt, unmatured debt increased by $109.1 billion, liabilities for other employee and veteran future benefits increased by $17.3 billion, and other liabilities increased by $0.1 billion. Liabilities for public sector pensions decreased by $2.6 billion.

The $109.1-billion increase in unmatured debt is largely attributable to a $101.0-billion increase in market debt and related unamortized discounts and premiums, reflecting increased borrowings to meet the government's financial requirements associated with its investing activities and operations.

The Bank of Canada and the Department of Finance Canada manage the government's unmatured debt and associated risks. The fundamental objective of the debt management strategy is to provide stable, low-cost funding to meet the government's financial obligations and liquidity needs. The vast majority of debt is denominated in Canadian dollars. There is a small amount of borrowings denominated in U.S. dollars, which fund a portion of the foreign exchange reserves. The reserves are managed under an asset-liability matching framework, and foreign exchange and interest rate risks are mitigated. Details on the government's debt management objectives, strategy, borrowing plans, and debt management activities are tabled annually in Parliament through the Department of Finance Canada's Debt Management Strategy and Debt Management Report.

Foreign holdings of the government's unmatured debt are estimated at $536.3 billion at March 31, 2025, representing approximately 36.1% of the government's total unmatured debt, up from 31.8% at March 31, 2024. Canada continues to benefit from the support of non-resident holders of government debt, which reflects the prudent approach to debt management and Canada's strong credit rating profile.

Foreign holdings of Government of Canada unmatured debt

Source: Statistics Canada

The government's liabilities for pensions and other future benefits stood at $376.4 billion at March 31, 2025, up $14.7 billion from the prior year. These liabilities reflect the estimated present value of pensions and other future benefits earned to March 31, 2025, by current and former employees, as measured annually on an actuarial basis, net of the value of assets set aside for funding purposes. Liabilities for pensions and other future benefits do not include benefits payable under the Canada Pension Plan (CPP). The CPP is not consolidated in the government's financial statements because changes to the CPP require the agreement of two-thirds of participating provinces, and it is therefore not controlled by the government. Further information regarding the CPP can be found in Section 6 of this volume.

The following table illustrates the change in the government's liabilities for pensions and other future benefits, net of public sector pension assets, in 2025.

The increase in net liabilities for pensions and other future benefits in 2025 reflects the addition of $22.4 billion in future benefits earned by employees during the year, a $0.1-billion valuation allowance, and $9.6 billion in net interest charges on the liabilities. The discount rates used in the measurement of the government-sponsored unfunded pension and other future benefit obligations and in calculating interest charges on the obligations are based on the actual zero-coupon yield curve for Government of Canada bonds at fiscal year-end. The discount rates used to value the government's obligations for funded pension benefits, which relate to post-March 2000 service that falls within the Income Tax Act limits under its three main pension plans—the public service, Canadian Forces–Regular Force, and Royal Canadian Mounted Police pension plans—as well as benefits under the Canadian Forces–Reserve Force pension plan are based on the streamed expected rates of return on invested funds.

The government's liabilities for pensions and other future benefits increased by an additional $4.0 billion in 2025 due to the recognition of net actuarial losses. As of March 31, 2025, the government had net unamortized losses of $5.5 billion. These losses will be amortized over time and recorded as part of net actuarial gains and losses and as an increase in the government's liabilities.

These increases were offset in part by reductions in the liabilities for benefits paid during the year ($25.5 billion), net transfers to the PSPIB and the net use of funds held in external trusts ($0.8 billion), and transfers to other plans and administrative expenses and other ($0.7 billion). Of note, transfers to the PSPIB in 2025 are net of a $1.9-billion transfer from the Public Service Pension Fund to the Consolidated Revenue Fund to eliminate a non-permitted surplus in the Public Service Pension Fund.

Further details on the federal public sector pensions and other employee and veteran future benefits are contained in Section 6 of this volume.

Interest-bearing debt stood at 60.8% of GDP in 2025, up from 59.5% in 2024. The sharp increase in interest-bearing debt in 2021 shown in the chart below reflects borrowings undertaken to meet the government's financial requirements under the COVID-19 Economic Response Plan. As of 2025, this ratio is down 14.1 percentage points from its high of 74.9% in 1996.

Graph - Interest-bearing debt

The average effective interest rate on the government's interest-bearing debt in 2025 was 3.0%, up from 2.8% in 2024. The average effective interest rate on unmatured debt and cross-currency swaps was 3.0%, while the average effective interest rate on pension and other liabilities was 2.9%.

Average effective interest rate on interest-bearing debt

The interest ratio (public debt charges as a percentage of revenues) shows the proportion of every dollar of revenue that is needed to pay interest and is therefore not available to pay for program initiatives. The interest ratio had been decreasing in recent years, falling from a peak of 37.6% in 1991 to 5.9% in 2022. The ratio has since increased to 10.5% in 2025, reflecting growth in the stock of debt and an increase in interest rates. This means that, in 2025, the government spent just over 10 cents of every revenue dollar on servicing the public debt, which is still relatively low by historical standards.

Interest ratio

Foreign exchange accounts liabilities and derivatives 

Foreign exchange accounts liabilities include Special Drawing Rights (SDR) allocations and notes payable to the International Monetary Fund (IMF). The SDR is an international reserve asset created by the IMF and allocated to countries participating in its SDR Department. SDRs represent both an asset (a holder of SDRs has the right to exchange them for an equivalent amount of freely usable currency, or other reserve assets, of other countries participating in the IMF's SDR Department) and a liability (an allocation of SDRs by the IMF entails an obligation to provide, on demand, an equivalent amount of freely usable currency to another IMF member). SDR holdings are recorded in foreign exchange accounts assets. The government's foreign exchange accounts liabilities at March 31, 2025, stood at $47.7 billion, up $3.6 billion from a year earlier. This increase was primarily due to foreign exchange rate movements, which resulted in the liabilities increasing in terms of Canadian dollars, and the issuance of additional notes payable to the IMF.

Derivatives represent financial contracts whose value is derived by reference to a rate, index, or underlying asset. The government uses derivatives for hedging purposes to manage various types of financial risk. With the adoption of new accounting standards on financial instruments in 2023, derivatives are presented separately from other types of liabilities and are recorded at fair value. Derivatives estimated to require a net outflow of resources if terminated at March 31 are presented as liabilities, while derivatives estimated to result in a net inflow of resources if terminated at March 31 are presented as assets. Derivative liabilities increased by $1.5 billion to $5.6 billion at March 31, 2025, reflecting changes in fair value, foreign exchange rates, and contracts that matured during 2025.

Financial assets

Financial assets include cash on deposit with the Bank of Canada, chartered banks and other financial institutions, accounts receivable, foreign exchange accounts assets, derivatives, loans, investments and advances, and public sector pension assets. The government's foreign exchange accounts assets include foreign currency deposits, investments in marketable securities, and subscriptions in and loans to the IMF. Proceeds of the government's foreign currency borrowings are held in the Exchange Fund Account to provide foreign currency liquidity and provide funds needed to promote orderly conditions for the Canadian dollar in foreign exchange markets. Further details on the management of international reserves, including foreign currency and interest rate risk, are available in the annual Report on the Management of Canada's Official International Reserves. The government's derivative assets include cross-currency swaps and foreign exchange forward agreements. The government's loans, investments and advances include its investments in and loans to enterprise Crown corporations, loans to national governments mainly for financial assistance and development of export trade, loans under the Canada Student Loans Program, and loans to small businesses and not-for-profits under the CEBA program.

Financial assets by category for 2025

Note: Numbers may not add to 100% due to rounding.

At March 31, 2025, financial assets amounted to $788.8 billion, up $83.7 billion from March 31, 2024. The increase reflects growth in loans, investments and advances, foreign exchange accounts assets, and public sector pension assets, offset in part by decreases in cash and accounts receivable and derivatives.

Loans, investments and advances in enterprise Crown corporations and other government business enterprises increased by $62.0 billion in 2025. Investments in enterprise Crown corporations and other government business enterprises increased $3.3 billion, largely reflecting $3.2 billion in net profits and $0.9 billion in other comprehensive income recorded by these entities during 2025, plus $0.4 billion in capital contributions made by the government. These increases were offset in part by $1.2 billion in dividends paid by these corporations and entities to the government. Additionally, other investments in enterprise Crown corporations and other government business enterprises rose $29.0 billion during the year due to the government's purchases of Canada Mortgage Bonds (CMBs) from CMHC. Canada's mortgage bond market plays a critical role in housing finance, providing lenders with a reliable source of funding. To support the market, the government committed in the 2023 Fall Economic Statement to purchasing up to $30 billion annually in CMBs from 2024 onward, adjusting volumes based on market conditions. Purchases began in February 2024, and the government's holdings stood at $36.6 billion as of March 31, 2025. In February 2025, the government launched a securities lending program for its holdings of CMBs. This initiative complements the purchase program in aiming to improve market liquidity and ensure smooth functioning of the country's mortgage-backed securities market. Under the program, the government makes its CMB holdings available for borrowing using market-based pricing.

Net loans and advances to enterprise Crown corporations and other government business enterprises were up $29.7 billion. This growth primarily reflects an $11.0-billion increase in loans to Crown corporations under the consolidated borrowing framework to finance the operational needs of the Business Development Bank of Canada, CMHC and Farm Credit Canada, as well as an $18.7-billion increase in loans to Trans Mountain Corporation (TMC), a subsidiary of the Canada Development Investment Corporation, to replace TMC's more expensive third-party debt.

Other loans, investments and advances increased by $6.7 billion, from $44.5 billion to $51.2 billion, primarily reflecting new loans to national governments, net issuances of Canada Student Loans, and increased lending by the Canada Infrastructure Bank. These increases were offset in part by a decrease in loans under the CEBA program, reflecting write-offs and repayments during the year, as well as an increase in the estimated allowance for loss at March 31, 2025.

Foreign exchange accounts assets increased by $21.2 billion in 2025, totalling $201.4 billion at March 31, 2025, due mainly to growth in the Exchange Fund Account (EFA). International reserves held in the EFA increased by $18.2 billion in 2025, reflecting $10.4 billion in foreign exchange gains due to appreciation in the Canadian dollar value of foreign currency denominated assets held in the Account, as well as $4.1 billion in income earned by the Account during the year. The remaining increase was due to growth in advances to the EFA, net of repayments and the transfer of the EFA's net income for the previous fiscal year to the Consolidated Revenue Fund. The remaining growth in foreign exchange accounts assets, which include Canada's subscriptions in the IMF and loans under the IMF's Poverty Reduction and Growth Trust and Resilience and Sustainability Trust, was due mainly to issuances and foreign exchange revaluation adjustments.

Public sector pension assets increased by $5.7 billion, largely reflecting increases in the net assets under the Public Service Pension Fund and Canadian Forces Pension Fund, which pertain to service accrued on or after April 1, 2000, that falls within the Income Tax Act limits under the Public Service Superannuation Act and the Canadian Forces Superannuation Act, respectively.

At March 31, 2025, cash and accounts receivable totalled $281.4 billion, down $10.7 billion from March 31, 2024. Within this component, cash and cash equivalents decreased by $21.0 billion, reflecting higher cash balances held at March 31, 2024, in preparation for a large debt maturity that occurred on April 1, 2024. The balance of cash and cash equivalents at March 31, 2025, includes $20.0 billion that has been designated as a deposit held with respect to prudential liquidity management, as well as $15.9 billion in term deposits from morning auctions of Receiver General cash balances. The morning auctions are conducted by the Bank of Canada in its role as fiscal agent for the Government of Canada and allow the government to invest excess cash balances in a prudent and cost-effective manner. Taxes receivable increased by $10.6 billion during 2025 to $213.7 billion. This increase reflects a number of factors, including growth in tax revenues and an increase in corporations' arrears, due in part to the interest-free deferral of corporate income tax and GST/HST remittances from April 2, 2025, to June 30, 2025, as part of the government's support for businesses in response to tariffs. Other accounts receivable decreased by $0.4 billion, reflecting a decrease in net COVID-19 benefit overpayments receivable from individuals and businesses, offset in part by net increases in cash collateral pledged to counterparties and other receivables.

Derivative assets decreased $1.2 billion to $1.8 billion at March 31, 2025.

Since the accumulated deficit reached its post-World War II peak of 66.6% of GDP at March 31, 1996, financial assets have increased by $687.7 billion, mainly reflecting an increase in loans, investments and advances (up $283.2 billion), higher levels of cash and cash equivalents and accounts receivable (up $228.8 billion), and an increase in foreign exchange accounts assets (up $175.6 billion). The increase in loans, investments and advances is attributable to several factors including the accumulation of net profits from enterprise Crown corporations, the government taking over the financing of the Canada Student Loans Program from the chartered banks in 2000, the issuance of direct loans to Crown corporations under the government's consolidated borrowing framework implemented in 2008, and most recently, purchases of CMBs from CMHC and the issuance of loans to TMC to lower the government's overall borrowing costs. The increase in cash and cash equivalents and accounts receivable is largely attributable to growth in taxes receivable and cash balances. The increase in taxes receivable reflects growth in the applicable tax bases, while the growth in cash reflects an increase in balances held under the government's prudential liquidity management plan announced in Budget 2011. The increase in foreign exchange accounts assets reflects a decision by the government in the late 1990s and in the 2012 Debt Management Strategy to increase liquidity in these accounts.

Graph - Financial assets

Net debt

The government's net debt—its total liabilities less financial assets—stood at $1,393.6 billion at March 31, 2025. Net debt was 45.4% of GDP, down 0.8 percentage points from a year earlier, and 26.6 percentage points below its peak of 72.0% at March 31, 1996. The increase in net debt as a percentage of GDP since 2020 reflects borrowings undertaken to meet the government's financial requirements under the COVID-19 Economic Response Plan.

This ratio measures debt relative to the ability of the country's taxpayers to finance it. Total liabilities are reduced only by financial assets as non-financial assets cannot normally be converted to cash to pay off the debt without disrupting government operations.

Graph - Net debt

International comparisons of net debt

Jurisdictional responsibility (between central, state and local levels of government) for government programs differs among countries. As a result, international comparisons of government fiscal positions are undertaken on a total government, National Accounts, basis. For Canada, total government net debt includes that of the federal, provincial, territorial, and local and Indigenous governments, as well as the net assets held in the CPP and Quebec Pension Plan (QPP).

Canada has the lowest total government net debt burden among G7 countries

G7 total government net debt, 2024

Source: IMF April 2025 Fiscal Monitor

Canada's total government net debt-to-GDP ratio stood at 11.9% in 2024, according to the IMF. This is the lowest level among G7 countries, which the IMF estimates will record a net debt of 92.9% of GDP for that same year.

International organizations such as the IMF and the Organisation for Economic Co-operation and Development publish figures for both gross debt (equivalent to total liabilities) and net debt (total liabilities less financial assets). When assessing the overall government fiscal situation, net debt is the preferred measure as it better reflects a country's financial position by accounting for both what it owes and what it has set aside. In particular, the net debt measure recognizes that public investments in financial assets generate future revenues or have been specifically accumulated to offset current or future liabilities. This is particularly relevant in Canada's case given its sizable financial asset holdings. In particular, Canada has taken significant steps to fund its public pensions, mitigating future fiscal risks. The CPP alone held over $710 billion in assets as of March 31, 2025, ensuring the plan is actuarially sound for Canadians for at least the next 75 years. These and other financial assets should be taken into account when assessing the country's financial situation, especially when making comparisons to peer countries that have not accumulated as many financial assets, including those to meet future public pension liabilities.

The following table provides a reconciliation between the Government of Canada's accumulated deficit-to-GDP ratio and Canada's total government net debt-to-GDP ratio used for international net debt comparison purposes. Importantly, the latter includes the net debt of the federal, provincial, territorial, and local and Indigenous governments, as well as the net assets held by the CPP and QPP and excludes liabilities for public sector pensions and other employee future benefits. Given significant inconsistencies across countries in the accounting treatment of unfunded liabilities for public sector pensions and other employee future benefits, international organizations remove them from debt estimates for countries that proactively include them (such as Canada) to facilitate international comparability.

Non-financial assets

Non-financial assets include the net book value of the government's tangible capital assets, which include land, buildings, works and infrastructure such as roads and bridges, machinery and equipment, ships, aircraft, and other vehicles. Non-financial assets also include inventories and prepaid expenses and other.

Non-financial assets by category for 2025

Note: Numbers may not add to 100% due to rounding.

At March 31, 2025, non-financial assets stood at $127.1 billion or 4.1% of GDP, up $10.5 billion from a year earlier. This growth primarily relates to an increase in tangible capital assets, in large part reflecting an increase in assets under construction. Prepaid expenses and other increased $0.2 billion, while inventories decreased $0.3 billion.

At March 31, 2025, 60.7% of the original cost of the government's depreciable tangible capital assets had been amortized, a decrease of 0.4% from a year earlier. Depreciable tangible capital assets exclude land and assets under construction, which are not yet available
for use.

Tangible capital assets

Note: The amounts for 2022 were restated in 2023 to reflect the government’s adoption of the new Public Sector Accounting Standard PS 3280 Asset Retirement Obligations. Prior years’ amounts have not been restated.

Assets under construction totalled $41.3 billion at March 31, 2025, some of which are being built using public-private partnerships in which the private sector partner designs, builds, finances, and/or operates and maintains large infrastructure projects. The government's liability for these long-term financing arrangements is included in obligations under public-private partnerships reported in Note 11 of the consolidated financial statements.

The government has a robust policy framework for the management of assets and acquired services. The framework sets the direction for management of assets to ensure the conduct of activities provides value for money and demonstrates sound stewardship in program delivery.

Cash flow

The annual operating surplus or deficit is presented on an accrual basis of accounting, recognizing revenue in the period it is earned and expenses when incurred, regardless of when the associated cash is received or paid. In contrast, the government's net cash flow measures the difference between cash coming in to the government and cash going out.

In 2025, the government had a total cash requirement of $114.2 billion before financing activities, compared to a total cash requirement of $70.9 billion before financing activities in 2024. Operating activities resulted in a net cash requirement of $23.0 billion in 2025, down from a net cash requirement of $47.0 billion in 2024, reflecting a number of factors including payments made in the prior year under claims settlements, the largest being the $23.3-billion payment under the final settlement agreement for First Nations Child and Family Services. Cash used by capital investment activities resulted in a net cash requirement of $17.2 billion in 2025, compared to a requirement of $13.5 billion in 2024. Investing activities resulted in a net cash requirement of $74.1 billion in 2025, compared to net requirement of $10.5 billion in 2024. This year-over-year change reflects increased cash outflows in 2025 from higher purchases of CMBs and the $19-billion refinancing facility made available to TMC, as well as increased cash inflows in the prior year from repayments of CEBA loans.

Financing activities generated a $93.2-billion source of cash in 2025, resulting in an overall net decrease in cash balances of $21.0 billion. The level of cash and cash equivalents stood at $54.1 billion at March 31, 2025.

Contractual obligations and contractual rights

The nature of the government's operations results in large multi-year contracts and agreements that will become expenses, liabilities, and cash outflows in future years. Major contractual obligations of the government relate to transfer payments, capital assets and purchases, operating leases, and payments to international organizations. As of March 31, 2025, future payments under contractual obligations totalled $340.6 billion ($257.1 billion as of March 31, 2024). The increase over the prior year largely reflects increased contractual obligations related to transfer payment agreements and capital assets and purchases.

Similarly, the activities of government can also involve the negotiation of contracts or agreements with third parties that result in the government having rights to both assets and revenues in the future. These arrangements typically relate to sales of goods and services, leases of property, and royalties and profit-sharing arrangements. The terms of these contracts and agreements may not always allow for a reasonable estimate of revenues in the future. For contracts and agreements that do allow for a reasonable estimate, total revenues to be received in the future under major contractual rights are estimated at $45.0 billion at March 31, 2025 ($35.6 billion as of March 31, 2024).

Further details regarding the government's contractual obligations and contractual rights are provided in Section 11, Contractual obligations, contractual rights and contingent liabilities, of this volume.

Future accounting changes

The Public Sector Accounting Board has issued a revised conceptual framework and new reporting model, effective for the government's fiscal year 2027. The conceptual framework is a set of interrelated concepts that provide the foundation upon which accounting standards are developed and professional judgment is applied. The reporting model sets out both general and specific requirements for the presentation of information in general purpose public sector financial statements, which include the consolidated financial statements of the Government of Canada. Public Sector Accounting Standard PS 1202, Financial Statement Presentation, lays out the new reporting model and is expected to result in several key changes to the government's consolidated financial statements, including:

• The Consolidated Statement of Financial Position will be restructured to present total assets and total liabilities to arrive at net liabilities. Net liabilities will measure the government's overall net financial position, comprising the accumulated deficit and accumulated remeasurement gains and losses. In addition, a new Consolidated Statement of Changes in Net Liabilities will be introduced that will show a reconciliation between the opening and closing balances of each component of the government's net liabilities. This statement will also show which revenues and expenses are recognized in the surplus or deficit and which are recognized directly in a component of net liabilities.
• Liabilities will be separated into financial and non-financial categories.
  • A financial liability is a liability that is expected to be settled using existing or future financial assets (e.g., unmatured debt).
  • A non-financial liability is a liability that does not meet the definition of a financial liability (e.g., some types of deferred, or unearned, revenues).

• The current net debt indicator (total liabilities less financial assets) will be replaced with net financial liabilities, representing the difference between financial assets and financial liabilities. A net financial liability position means there is a need for additional financial assets to aid in settling past financial liabilities.

Work is underway to ensure that these changes will be ready for implementation in 2027.

Risks and uncertainties

The government's financial results are subject to risks and uncertainties inherent in the nature of certain financial statement elements and government operations, including:

• changes in economic conditions—particularly changes in economic growth, inflation, and interest rates
• outcomes from litigation, arbitration, and negotiations with third parties, and the resolution of taxes under objection
• identification and quantification of environmental liabilities
• aging tangible capital assets, including information technology infrastructure, and costs associated with retiring capital assets at the end of their useful lives
• credit risk and foreign currency risk associated with the government's financial assets, including loans, investments and advances and foreign exchange accounts assets
• unforeseen situations such as natural catastrophes, geopolitical developments, cybersecurity incidents, or pandemics
• effects of climate change and climate-related innovations and measures, which could affect the values of existing assets and liabilities.

The government's financial statements incorporate a number of significant estimates and assumptions related to risks and uncertainties that are used in valuing its assets, liabilities, revenues, and expenses. One of the most significant areas of measurement uncertainty relates to public sector pensions and other employee and veteran future benefits, for which payments are made many years into the future and are dependent upon the evolution of factors such as wage increases, inflation, workforce composition, retirement rates, mortality rates, and returns on pension investments. In developing its best estimates and assumptions, which are set at the reporting date, the government takes into consideration historical experience, current facts and circumstances, and expected future developments. The government's financial results are also subject to volatility as a result of year-over-year changes in the discount rates used to value its public sector pension and other employee and veteran future benefit obligations. These discount rates are affected by interest rates and expected rates of return on assets, and changes in these discount rates will result in unrealized gains and losses that are amortized to expenses.

Another significant area of measurement uncertainty relates to contingent liabilities. As described earlier in this financial statements discussion and analysis, contingent liabilities represent possible obligations that may result in future payments when one or more events occur or fail to occur. As of March 31, 2025, the government's exposure to contingent liabilities totalled over $3 trillion. However, the vast majority of this amount represents situations where the probability of a future payment is assessed as unlikely or not determinable. As of March 31, 2025, the government's provision for contingent liabilities totalled $54.7 billion. However, as highlighted, there is inherent uncertainty in this amount.

The government's assumptions related to risks and uncertainties used in determining its financial results are reassessed at each fiscal year-end and updated as necessary. Exposure to measurement uncertainty from the use of accounting and other estimates in recording certain transactions is discussed in the notes to the consolidated financial statements, including Note 1 (Summary of significant accounting policies). Details with respect to the measurement of specific financial statement elements, such as tax revenues (Note 4), provisions for accounts receivable (Note 16 and Note 17), contingent liabilities (Note 9), environmental liabilities and asset retirement obligations (Note 10), public sector pensions and other employee and veteran future benefits (Note 12), and loans, investments and advances (Note 19 and Note 20) are also included in the consolidated financial statements. Note 22 of the consolidated financial statements provides information on instruments and strategies used by the government to manage financial risks associated with its financial assets and liabilities.

The government's revenues and expenses are highly sensitive to changes in economic conditions—particularly to changes in economic growth, inflation, and interest rates.

To illustrate the impact of changes in economic conditions, the Department of Finance Canada publishes, on a regular basis, sensitivity impacts on the budgetary balance. These are "rules of thumb" as the actual impact will depend on many other factors as well. As published in the April 16, 2024, federal budget, these show, for example, that:

• A one-year, 1-percentage-point decrease in real GDP growth would lower the budgetary balance by $4.9 billion in the first year, $4.8 billion in the second year, and $5.6 billion in the fifth year.
• A one-year, 1-percentage-point decrease in GDP inflation would lower the budgetary balance by $2.3 billion in the first year, $2.6 billion in the second year, and $1.9 billion in the fifth year, assuming that the Consumer Price Index moves in line with GDP inflation.
• A sustained 100-basis-point increase in interest rates would lower the budgetary balance by $3.7 billion in the first year, $5.5 billion in the second year, and $7.7 billion in the fifth year.

While these generalized rules of thumb provide good estimates of the sensitivity of the budgetary balance to small economic changes, it is important to note that some of the estimated relationships would change in response to large economic changes. 

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