One Comment About Taxation –You Can’t Fix Canada’s Fiscal Crisis by Rewriting the Accounting Rules

 

I finally had a chance to review The 2025 Public Accounts of Canada which was released on November 7, 2025. It reports on the revenues and expenses of the Government of Canada for the fiscal year ending March 31, 2025. It’s not a light read but for tax geeks like me, it’s interesting!

 

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 reportings except for government business enterprises which are required to follow International Financial Reporting Standards (IFRS).

 

However, the recently released federal budget uses its own bastardized and deceptive methodology to “separate the operating budget from the capital budget”. Such a method is a simplistic and deceptive way to try to mask excessive spending. How does it do that? Well, it has an excessively broad definition of “capital” – outside of normal and accepted definitions – which moves day-to-day expenditures to the capital budget thus making it seem like the government is “investing” while reducing the “operating budget”. This methodology appeals to the financially illiterate voter who might think that the government is being prudent but it doesn’t fool sophisticated users like creditors and bond rating agencies.

 

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

 

Having said the above, some financial highlights from the Public Accounts for the fiscal year ended March 31, 2025 are as follows:

 

• Total federal revenues – $510.95 billion – up $51.45 billion from $459.5 billion in 2024 (an 11.2% increase);
• Of those total revenues, personal tax revenues were $234.32 billion (45.86% of total revenues) compared to $217.7 billion for 2024 (47.4% of total revenues);
• Corporate tax revenues were $96.95 billion (18.97% of total revenues) compared to $82.46 billion for 2024 (17.95% of total revenues);
• GST was $52.5 billion of total revenues (10.27% of total revenues) compared to $51.4 billion for 2024 (11.2% of total revenues);
• Total government expenditures was $547.3 billion – up $25.9 billion from $521.4 billion in 2024 (a 4.96% increase);
• Of those public expenditures, public debt charges were $53.4 billion (10.5% of total revenues) compared to $47.3 billion for 2024 (10.3% of total revenues);
• Total OAS payments (including GIS) – $79.5 billion (15.6% of total revenues) compared to $75.5 billion for 2024 (16.4% of total revenues); and
• Canada Health transfers – $52.07 billion compared to $51.43 billion for 2024.

 

There is a lot of detailed information in the Public Accounts – including lots of spending that makes a fiscal conservative like me cringe.

 

Like the Parliamentary Budget Officer (who is eminently more qualified than I am to discuss economics but I am most certainly qualified to discuss common sense) who raised alarm bells about the sustainability of federal fiscal policies, I too query whether such continued increased spending – especially that as outlined in the recent budget – is sustainable. For example:

 

• The deficit for 2025 was $36.3 billion but 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 a material portion of overall spending.

 

So, what does all of this mean from a taxation perspective? Without constrained spending – which doesn’t mean balancing the “operating budget within three years” – I fear that Canada will be forced to make drastic changes that won’t bode well for many Canadians. Such changes will likely continue to target the successful and discourage investment in Canada.

 

Other countries are not immune to such changes. For example, Switzerland – long a magnet for wealthy people – voted this last 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% rate. If it was successful, 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“ like that 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” like that recently proposed in the U.K. 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 spring election. It was clearly a simple tit-for-tat response to the Conservatives who had promised a fulsome Tax Reform Task Force. It 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 observed, “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.

 

One Comment About Leadership – Leaders, If You Are Less Than Truthful – Or  Worse You’re a Liar – It Will Eventually Catch Up With You

 

In your leadership career, have you ever come across people who are less than truthful or, frankly, outright liars? Unfortunately, it’s common. Recently, I dealt with a leader who – after a series of exchanges and a clear pattern of behavior – was caught in an obvious lie. When the evidence was presented to him, instead of owning it, he doubled down and carried on unfazed.

 

How do you react when that happens?

 

For me, it’s simple: I lose all respect for the person. And I distance myself as quickly as possible. I don’t like spending time with deceptive people. Their character is not something I want to be associated with.

 

I live by a simple rule: always tell the truth. Yes, confidentiality sometimes limits what I can discuss, but in situations where I can speak, I tell the truth. Why? Because it’s respectful. It’s honorable. And, frankly, keeping track of lies sounds like exhausting work.

 

Here’s the leadership lesson: credibility compounds – until the moment you lie. Then it collapses instantly. Leaders don’t get to play with that kind of fire.

 

I like my simple rule. What about you?

 

One Comment About Economics / Politics – The Memorandum of Understanding Between the Federal Government of Canada and the Province of Alberta

 

Last week, the federal government of Canada and the Province of Alberta signed a Memorandum of Understanding to, overly simplified, build a pipeline to the western coast of Canada. There were meaningful adjustments and concessions by both sides. Having said that, there is still a long way to go to get shovels in the ground but I commend Premier Danielle Smith for her leadership and fighting hard for Alberta.

 

My friend, the eminent economist Jack Mintz, wrote a sobering article in the Financial Post shortly after the MOU. He is very concerned about the conditions attached for a pipeline to get built.

 

As he states in the article:

 

“The big problem for a new oil pipeline isn’t getting B.C. or First Nation acceptance. Rather, it’s smothering the industry’s competitiveness by layering on carbon pricing and decarbonization costs that most competing countries don’t charge.

 

If the West Coast pipeline becomes a pipe dream, our inability to get the project off the ground will be a major embarrassment to Canada. If that happens, the first flames of Alberta separation could turn into a Prairie wildfire.”

 

Yep – I worry about that. Canada needs a pipeline for the benefit of ALL Canadians.

 

I also find the speaking point by PM Carney wholly illustrative. He says the MOU “…creates necessary conditions, but not sufficient conditions” for a pipeline project to move forward.  Beautiful…so he already has a word salad of speaking points to provide him the necessary fodder to say in the future, when the pipeline project is ultimately cancelled for lack of support, that he had provided a warning years earlier. Beautiful politics.

 

I hope we can see some material progress here despite the troublesome conditions attached to the MOU.

 

Bonus Comment – Quote From Mark Twain – Classic American Author – About Lying

 

“If you tell the truth, you don’t have to remember anything.”

 

Absolutely agree!

 

Hope you enjoyed this edition of 1-1-1. If you’re not already part of the In the Mood Network, now’s the time. Please sign-up today.  Whether it’s through consulting, coaching, speaking, or writing, my work is about planting acorns: deliberate, principled actions that challenge the status quo and grow into something far bigger. The goal? Bold reform. Stronger foundations. And a country that values hard work and common sense.