Canada’s combined federal, provincial, territorial and local governments posted a $16.4 billion deficit in the first quarter of 2026, up $1.5 billion from the same period a year earlier as revenue slipped and spending edged higher.
Total revenue fell 0.1% from the first quarter of 2025, while expenses increased 0.4%. The combined deficit was equal to 2.1% of nominal gross domestic product, up from 1.9% a year earlier.
The federal government accounted for most of the deterioration. Its deficit widened to $19.4 billion, an increase of $3.3 billion from the first quarter of 2025, as revenue declined and expenses rose.
Federal tax revenue reflected the impact of policy changes introduced a year earlier. Taxes on income, profits and capital gains paid by households increased $2.2 billion, or 3.4%. That gain was offset by a $3.8 billion, or 18%, drop in taxes on goods and services following the elimination of the federal consumer carbon tax on April 1, 2025.
Other federal revenue fell by $1 billion, or 13.7%, because a pension surplus transfer recorded in the first quarter of 2025 was not repeated this year.
Federal expenses increased $1.2 billion, or 0.8%, led by an $800 million increase in spending on goods and services, primarily for ammunition purchases. Social benefit payments declined by $400 million after the end of the Canada Carbon Rebate to households. Subsidies also fell as lower spending on zero-emission vehicle incentives exceeded higher subsidies provided to Canada Post.
Provincial and territorial governments reported improved results. Their combined deficit narrowed by $5.2 billion to $18.2 billion from a year earlier.
According to the release, the improvement largely reflected the absence of major one-time transfer expenses recorded by Ontario in the first quarter of 2025, including the taxpayer rebate program and large capital transfers for transit projects.
Excluding social security funds, the general government deficit was $34.1 billion in the first quarter of 2026, little changed from the $34 billion deficit recorded a year earlier.
The government’s balance sheet showed a different trend. General government net debt declined by $26 billion, or 4.6%, to $538.1 billion compared with the first quarter of 2025, as financial assets increased more quickly than liabilities.
Financial assets rose by $229.4 billion, while liabilities increased by $203.4 billion over the same period.
Without the accumulated surplus held by social security funds, however, general government net debt increased by $61.8 billion, or 4.3%, to $1.49 trillion.
The federal government’s net debt rose by $30.6 billion to $1.02 trillion. Its liabilities increased by $100.4 billion, including a $78.8 billion increase in debt securities, while financial assets grew by $69.8 billion.
Net debt for provincial, territorial and local governments increased by $31.2 billion, or 7.1%, to $471.8 billion.
Measured against the size of the economy, overall general government net debt declined to 16.5% of nominal GDP from 17.9% a year earlier. Excluding social security funds, the ratio edged up to 45.6% from 45.3%. The federal government’s net debt-to-GDP ratio eased to 31.1% from 31.3%, while the ratio for provincial, territorial and local governments rose to 14.4% from 14.0%.