The federal government recorded a deficit of $2.1 billion in the second quarter, compared with a $4.5 billion surplus in same period of 2024, Statistics Canada data released Friday show.
At the same time, the deficit of provincial and territorial governments widened by $5.1 billion to $7.2 billion, while local governments posted a deficit of $2.4 billion, little changed from a year earlier.
The net debt-to-GDP ratio of the federal government was 31.7% at the end of the second quarter of 2025, while that of provincial, territorial and local governments stood at 14.4%.
Federal government net debt increased by $51.5 billion in the second quarter compared with the same period a year earlier, reaching $994.9 billion. The market value of the federal government’s total liabilities rose by $129.1 billion (7.6%), driven by an increase in the value of its outstanding debt securities ($147.8 billion or 11.2%).
The federal government’s shift from a surplus in the second quarter of 2024 to a deficit in the same quarter this year was primarily driven by expense growth of 5.5% ($6.7 billion), while revenues grew at just 0.1% ($0.2 billion) — marking the lowest year-over-year growth rate since the first quarter of 2010, excluding the pandemic.
Tax revenue declined slightly amid weaker nominal GDP growth. Taxes on income, profits and capital gains increased by $0.4 billion, while revenues from taxes on goods and services fell by $2.5 billion, primarily because the federal consumer carbon tax was scrapped on April 1 this year. Taxes on international trade and transactions rose $2.1 billion in the second quarter of 2025 compared with the same quarter a year earlier, mainly due to higher tariffs on U.S. imports.
Interest expenses declined 1.8% year over year in the second quarter of 2025, down for the second consecutive quarter, but the interest expense-to-revenue ratio remained elevated at 10.3%.
Federal government grants, including the initial payment of the Robinson Superior settlement, increased by $4.4 billion on a year-over-year basis in the second quarter. Employment insurance benefits rose by $1 billion (9.7%) from the same quarter of the previous year.
April-to-July deficit
Separately, estimates from the Finance Department’s monthly fiscal monitor showed a budgetary deficit of $7.8 billion for this year’s April-to-July period.
That compares with a deficit of $7.3 billion in the same period a year earlier.
Revenue for the period totalled $163.4 billion, up from $160.8 billion a year earlier, as tax revenues rose 4.5%.
Total program expenses, excluding net actuarial losses, increased to $151.3 billion, compared with $146.9 billion.
Public debt charges for the period amounted to $18.6 billion, down from $18.7 billion.
Net actuarial losses were $1.3 billion, down from $2.5 billion a year earlier.
With files from The Canadian Press