We’re trying to fund 21st-century expectations with 20th-century tax systems.

Todd Hirsch

25-MARCH-2026

Canada’s recent federal and provincial budgets share two defining features: enormous deficits and no credible plan to eliminate them.

Last fall, Ottawa posted a deficit of $78.3 billion. This spring, provinces such as Alberta, Quebec, Ontario and British Columbia added tens of billions more to the national debt. Governments defend these shortfalls as necessary — to build infrastructure, strengthen health care, provide tax relief, and respond to a more dangerous and volatile world shaped by Donald Trump’s threats of tariffs and even annexation.

Those explanations are politically useful. But they’re not the real story.

The deeper truth is that balanced budgets have become… well, impossible.

That will be an unwelcome message to fiscal hawks, who insist the answer is simply to cut spending. In their judgement, all governments are bloated, inefficient, and wasteful. Others will argue the problem is on the revenue side: raise taxes, whether through a higher HST, a wealth tax, or steeper levies on big corporations.

Canadians have heard both prescriptions for years.

Neither is remotely equal to the scale of the problem.

The real issue is structural. We are trying to fund 21st-century public expectations with a 20th-century tax system. In an economy that is increasingly complex, more fragmented, and more exposed to global shocks, the math no longer works.

Consider Ottawa. Of roughly $500 billion in annual spending, about 80 per cent goes to direct transfers to individuals, transfers to provinces and territories, debt servicing, and national defence. None of those areas can be cut in any serious way without triggering a constitutional crisis, a political revolt, massive economic damage, or our expulsion from NATO.

What remains is a relatively small slice of discretionary spending of about $100 billion. To close a deficit of nearly $80 billion from that alone would require dismantling much of the federal state: almost complete elimination of the public service, the courts, prisons, parks, and core national institutions. It is not a serious solution.

The provinces face the same bind. Roughly three-quarters of provincial spending is concentrated in health care, K–12 education, and post-secondary education. These are not luxurious extras; they are already severely strained. Efficiencies are always worth pursuing, but no realistic efficiency drive will erase deficits of this magnitude.

Could taxes do it? Only in theory. In practice, balancing budgets through taxation would require increases so large — 25 to 35 per cent — that few Canadians would tolerate them. Many households could simply not absorb them. In an already uncertain climate, it could easily tip the economy into recession.

What about the “grow-the-economy” solution? Politicians love this answer because it sounds painless. But a 1-per-cent increase in real GDP generates only about $5 billion in additional federal revenue — woefully inadequate against a $78 billion deficit. We would need real GDP growth of 16 per cent this year. That is not a serious plan; it is fantasy.

So the familiar remedies — spending restraint, higher taxes, and faster growth — all fall short.

Meanwhile, the demands on government continue to rise. We need more housing, more roads and ports, more digital infrastructure, and significantly more spending on defence in a more hostile world. Health care alone now consumes roughly half of provincial budgets, and that pressure will intensify as the population ages and medical technology grows more advanced and more expensive.

A century ago, health care meant basic treatment and limited intervention. Today it means MRIs, sophisticated drug therapies, long-term care, and complex procedures that would once have been unimaginable. Canadians rightly want access to those advances. But wanting them does not make them cheap.

If Canadians want 21st-century public services, we need either a fundamentally different revenue model or a much more honest reckoning with what we can no longer afford. That could mean politically explosive choices: a massively higher consumption tax, major reductions to seniors’ benefits, a new approach to taxing wealth, or a wholesale rethink of income support (based on a Universal Basic Income).

None of these options is attractive. And I’m unconvinced Canadians are ready to consider any of them.

Instead, Canada is drifting through a period of fiscal chaos masked as normalcy. Governments run deficits, promise compassion and prudence in the same breath, and postpone the hard decisions yet again. The danger is not an immediate fiscal crisis. It is something quieter and more corrosive: a slow decline in the quality of public services, a weaker standard of living, and the steady fraying of social cohesion.

That’s how prosperous countries lose their edge — not all at once, but gradually, by pretending the arithmetic can be negotiated in an uncertain and increasingly volatile world.