Liberals Ignoring The 'economics Of Scarcity' Could Mean More Taxes Are Coming

The details of the Government of Canada’s revenues and expenses for the fiscal year ending March 31, 2025, as per the 2025 Public Accounts of Canada documents , do not make for a light read, but it’s interesting for tax geeks such as me and should be for all Canadians.

It’s important to know that the financial reports are prepared using generally accepted accounting principles for government organizations, or as it is appropriately called, Public Sector Accounting Standards (PSAS) as issued by the Public Sector Accounting Board of CPA Canada.

Most Canadian governments use PSAS as the basis for financial reporting except for government business enterprises that are required to follow International Financial Reporting Standards (IFRS).

However, the recently released federal budget used its own deceptive methodology to “separate the operating budget from the capital budget.” Such a method is a simplistic way to try to mask excessive spending.

How does it do that? Well, it has an excessively broad definition of capital — outside the normal and accepted definitions — that moves day-to-day expenditures to the capital budget, thereby making it seem like the government is “investing” while reducing the “operating budget.”

This methodology appeals to the financially illiterate voter who might think the government is being prudent, but it doesn’t fool sophisticated users such as creditors and bond-rating agencies.

It’s also noteworthy that the Public Accounts standards and federal budget standards are not reconcilable. If you’re an astute reader trying to reconcile the data from the two different reports, it’s not easy.

Having said that, here are some financial highlights from the latest report:

• Total federal revenues were $510.95 billion, up $51.45 billion, or 11.2 per cent, from $459.5 billion in 2024.
• Of those total revenues, personal tax revenues were $234.32 billion (45.9 per cent of total revenues) compared to $217.7 billion for 2024 (47.4 per cent of total revenues).
• Corporate tax revenues were $96.95 billion (19 per cent of total revenues) compared to $82.46 billion for 2024 (18 per cent of total revenues).
• GST was $52.5 billion of total revenues (10.3 per cent of total revenues) compared to $51.4 billion for 2024 (11.2 per cent of total revenues).
• Total government expenditures were $547.3 billion, up $25.9 billion, or about five per cent from $521.4 billion in 2024.
• Of those public expenditures, public debt charges were $53.4 billion (10.5 per cent of total revenues) compared to $47.3 billion for 2024 (10.3 per cent of total revenues).
• Total Old Age Security (OAS) payments (including the Guaranteed Income Supplement) were $79.5 billion (15.6 per cent of total revenues) compared to $75.5 billion for 2024 (16.4 per cent of total revenues).
• Canada Health transfers were $52.07 billion compared to $51.43 billion for 2024.

There is a lot of detailed information in these accounts, including plenty of spending , that makes a fiscal conservative such as me cringe. Like the Parliamentary Budget Officer, who raised alarm bells about the sustainability of federal fiscal policies, I wonder whether such continued increased spending — especially as outlined in the recent budget — is sustainable.

For example, the deficit for 2025 was $36.3 billion, but is expected to increase to $78.3 billion for 2026; public-debt charges are expected to increase to $76.1 billion over the next five fiscal years; GST collections are less than public-debt charges, almost equal to Canada Health transfers and are fast approaching total corporate tax revenues; and total OAS payments are growing quickly and are a material portion of overall spending.

From a taxation perspective, without constrained spending — which doesn’t mean balancing the “operating budget within three years” — I fear Canada will be forced to make drastic changes that won’t bode well for many Canadians, continue to target the successful and discourage investment here.

Other countries are not immune to such changes. For example, Switzerland — long a magnet for wealthy people — voted this past Sunday on a proposal (from the youth wing of the country’s left-wing Social Democrats) to tax gifts and inheritances of 50 million Swiss francs at a 50 per cent rate. If it had been successful, the money raised from the tax would have apparently funded policies to combat climate change. It was soundly and rightly defeated .

Will a similar proposal rear its head in Canada? What about a home equity tax ? An “ empty rooms tax ,“ such as was floated in Australia? Revisions/restrictions to the principal residence exemption? Increases to the already too high personal and corporate tax rates? A tax on “mansions,” which was recently proposed in the United Kingdom budget?

There are thousands of silly ideas that a government can propose to increase revenues, and if Canada keeps spending like the taps will never go dry, there will most definitely be challenges ahead.

The answer is tax reform . The Liberals promised to implement an “expert review of the corporate tax system” during the election. It was clearly a simple tit-for-tat response to the Conservatives’ promise of a fulsome Tax Reform Task Force. The review was not even mentioned in the recent federal budget. Without fulsome reform, Canada will inevitably continue to fall prey to poorly thought-out taxation policies.

If our government wants to stay fiscally afloat and lead the G7 in economic growth, it will need to take on tax reform, something Canada has neglected for decades. Until we heed that warning, we are setting ourselves up for a continuing spiral of higher and different taxes and lower investment.

Economist Thomas Sowell once said, “The first lesson of economics is scarcity. The first lesson of politics is to disregard the first lesson of economics.”

Unless our leaders start facing economic reality — rather than massaging the optics — Canada will continue down a path where the cost of political convenience is paid by taxpayers for generations.

• Canadians should not take it if the CRA's 100-day improvement plan doesn't offer up real solutions
• PBO calling out the federal government's fiscal approach should raise red flags for all of us

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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