The trick is simple. Split the federal budget into two pieces – an “operating budget” and a “capital budget.” Define “capital” so broadly that almost anything qualifies. Move enough day-to-day spending into the capital column. Then declare the operating budget balanced while the total deficit and the debt keep growing.

 

It works for one reason: it plays on the financial illiteracy of most Canadians, who hear “balanced” and assume it means balanced. It doesn’t. That’s why, in my opinion, this trick is quasi-evil. It exploits that naivety to suggest the government is being fiscally prudent when it isn’t.

 

I’ve been calling this out since Prime Minister Mark Carney first floated the idea during the 2025 Liberal leadership race – or, more accurately, the Carney coronation. In February 2025, before he was even Prime Minister, I called the proposal “simply nutty with the potential to be outright deceptive.” In March 2025, I wrote in the Financial Post that it was a tired old accounting trick used many times around the world to deceive voters into believing their government was being fiscally prudent.

 

When the Department of Finance released its breathtakingly broad definition of “capital” in October 2025, I called it accounting sleight of hand. When the November 4, 2025 federal budget made balancing the operating budget within three years one of its fiscal anchors, I wrote: “Why wait three years? Just move enough day-to-day expenditures to the ‘capital budget’ to have the ‘operating budget’ balanced and, voila! Fiscal anchor achieved!” In April 2026, I said the government might as well have declared victory on budget day. And in May 2026, I pointed out that the Spring Economic Update leaned heavily on the same trick.

 

Recent events have proven the point.

 

On September 15, 2026, at the Canada Investment Summit in Toronto, Mr. Carney told a room full of global investors: “I can announce today that we are on track to balance the operating budget next year, one year ahead of schedule, while maintaining the lowest overall deficit in the G7.”

 

Nine days later, the Parliamentary Budget Office (PBO) released a report on that very fiscal anchor. Its conclusion: the so-called operating budget won’t balance until 2029-30 – a year after the 2028-29 target set in the 2025 budget and two years later than the Prime Minister’s claim.

 

But the headline isn’t the most important part of the report. This is: on the PBO’s numbers, the government misses its 2028-29 target by only about $500 million – a rounding error on more than $500 billion of annual operating spending. The government could close that gap by actually cutting $500 million of day-to-day spending. Or it could simply relabel $500 million of existing spending as “capital” and declare victory. The PBO says it in plain words:

 

“Classifying even a modest amount of spending as capital rather than operating, without any actual change in fiscal policy, may have been relevant to balance the initial operating budget fiscal track.”

 

In other words, the fiscal anchor can be met without spending a dollar less. When you control the definition, you control the date.

 

Why is it so easy? Because of the definition. The Department of Finance defined capital investment as “any government expense or tax expenditure that contributes to public or private sector capital formation, held directly on the government’s balance sheet or on that of a private sector entity, Indigenous community or another level of government.” That’s not a definition. It’s a welcome mat.

 

The government says spending is capital if it passes two tests: whether the recipient must invest in capital formation to get the money, and whether the spending encourages investment in identifiable sectors or projects. The PBO explains the problem with those tests: classifying any given program “depends on judgments that are not easily observable to outside parties. Two similar-looking programs can receive different treatments depending on how closely each satisfies the conditionality and linkage tests, making it difficult to independently replicate government figures or anticipate how future spending will be classified.” No formal methodology has been published.

 

The examples speak for themselves. Film tax credits are capital; the ridiculous journalism tax credits are not. The Agricultural Clean Technology program is capital; the Agricultural Climate Solutions program is operating – even though both support farm-level investment. Corporate tax expenditures, investment tax credits and production subsidies are all counted as “capital,” even though the PBO says none would be treated that way under international standards or in the United Kingdom.

 

The U.K. is the government’s favourite comparison. But the U.K. pairs its operating/capital split with a debt rule and a definition of capital aligned with international standards. Canada has neither. The 2025 budget retired the long-standing fiscal anchor of a declining debt-to-GDP ratio. As the PBO dryly puts it, “there is not a similar constraint on total debt accumulation.”

 

And the deterioration in the country’s finances isn’t even being driven by “investment.” Since the 2025 budget, economic and fiscal developments created $18.5 billion of fiscal room over five years. The government then announced $173.3 billion in new measures – $126.8 billion of it day-to-day operating spending. The PBO concludes that the deterioration in the fiscal track “reflects the government’s own policy choices, concentrated in operating rather than capital spending.” So much for “spend less to invest more.”

 

None of this is new to the PBO. In August 2025, before the government even published its definition, it reminded everyone that capital spending “is a well-defined accounting concept regulated by independent arm’s-length experts.” In November 2025, it calculated that capital investment was overstated by about $94 billion compared to international practice, that the operating budget would remain in deficit every year through 2029-30 on that basis, and it recommended an independent expert body to decide what counts as capital. There’s no sign that happened. Two different Parliamentary Budget Officers, a year apart, same conclusion.

 

Even the CBC – the Liberal Party’s mouthpiece – ran the story, and its chief political correspondent, Rosemary Barton, shared it on X. When the government’s most reliable amplifiers start passing along the watchdog’s criticism, you know the trick has worn thin.

 

The government’s response? A spokesperson for Finance Minister François-Philippe Champagne said the fall budget will show the operating budget balanced a year early, and that focusing on operating spending is a “stricter guardrail” than debt ratios.

 

Hogwash. A guardrail the driver can move isn’t a guardrail.

 

So here’s my test for the upcoming fall budget. When it lands, ask one simple question: how much of the “improvement” in the operating balance comes from actual spending restraint – and how much from programs migrating from the operating column to the capital column, or a definition that quietly got wider? If the government can’t show that reconciliation, you have your answer.

 

Bondholders and credit rating agencies aren’t fooled. They look at the total deficit, which the 2025 budget projected to average $64.3 billion a year through 2029-30, and the debt it piles up.

 

Canadians shouldn’t be fooled either. Relabelling spending doesn’t change a single dollar that has to be borrowed – and eventually repaid by our kids and grandkids.