One Comment About Taxation –The Parliamentary Budget Officer’s Comments About the 2025 Federal Budget

 

Do you find common sense discourse refreshing? I do. Unfortunately, it’s not common. 

 

One of my favorite lines from the 1993 movie Philadelphia is “explain this to me like I’m a six-year-old.” I’ve used that line often during my 30+ year tax leadership career to encourage people to explain concepts to me that are otherwise complex. Why? Because understanding demands clarity. If the words are foggy, the ideas probably are too.

 

Today’s leaders – especially politicians – will often deflect straightforward questions with “word salads” or diatribes that have nothing to do with the original question. Studies on attention and listening show that people disengage quickly when relevance drops — often within seconds. In conversation, most listeners expect a direct answer almost immediately. If the speaker drifts into word-salad or political evasiveness, attention begins collapsing well before the one-minute mark. Politicians often take advantage of that.

 

With our current government, you’ll likely hear one of the following vacuous phrases in response to questions regardless of relevance: “we’re spending less to invest more”; “we’ll balance the operating budget within three years”; “we’re building the strongest economy in the G7”; “we’re making generational investments”; and in some cases, you’ll hear all four and more (a new one after the release of the federal budget is that it will “catalyze a trillion dollars of investment”).

 

The above vacuous phrases sound good and are useful to achieve the objective of not directly answering questions. It works because many Canadians are unfortunately financially illiterate or don’t have the time to dissect important financial information.

 

But they are particularly offensive when you combine them with the new deceptive budgeting framework used by the government when presenting its new budget.

 

For those that need a reminder, Mr. Carney promised a new budgeting framework during the Liberal Party leadership campaign when he said he would separate the federal budget into an “operating budget” and a “capital budget” with the operating budget being balanced within three years.

 

Deceptive tricks like this are a blatant attempt to baffle people by transferring many day-to-day expenditures from an overall budget to a capital budget and crow that you are “investing.” The key to making it work is to ensure that the definition of “capital” is so broad that you can transfer amounts easily into the “capital” budget. Sophisticated interested parties – like bondholders or rating agencies – are not fooled by such deceptive tricks. This trick is reserved for the low information voter.

 

On October 6, 2025, the Department of Finance released its proposed definition of “capital” under the guise of suggesting it was “modernizing” its budgeting approach. To be frank, there is nothing modern about deception. It was, as expected, breathtakingly broad and not consistent with general principles both in accounting circles and in government budgeting exercises around the world. On October 7, the Parliamentary Budget Officer (PBO) expressed its concern about the broadness of the proposed definition saying “…we find that the scope is overly expansive and exceeds international practice…”.

 

The November 4, 2025 federal budget deployed this deceptive framework prominently when laying out the massive, proposed spending. Of course, much of the spending was labeled as “capital” or “investment” consistent with the vacuous phrase to “spend less to invest more”. Frankly, to read the budget with this framework was nauseating. It’s difficult to read something that is so blatantly misleading.

 

The budget also announced that balancing the operating budget within three years was one of its “fiscal anchors”. With such a malleable definition of “capital”, that fiscal anchor is a joke. 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!

 

On November 14, 2025, the PBO released its first comments about the federal budget in a Report. It’s a refreshing read. From the Report:

 

– “PBO maintains its view that the Government’s definition of capital investments is overly expansive. Based on PBO’s definition, capital investments would total $217.3 billion over 2024-25 to 2029-30—approximately 30 per cent ($94 billion) lower compared to Budget 2025.”

 

– “Given the subjectivity involved in defining federal capital investments and their role in guiding fiscal policy decisions and in assessing fiscal performance, the PBO recommends that the Government establish an independent expert body to determine which federal spending categories and measures qualify as capital investment under an expanded definition beyond the Public Accounts of Canada.”

 

– Finance Canada projects the deficit-to-gross domestic product (GDP) ratio to increase to 2.5 per cent in 2025-26, before declining over the medium term to reach 1.5 per cent in 2029-30. Based on PBO stress testing, there is a 7.5 per cent chance that the deficit-to-GDP ratio will decline in every year over 2026-27 to 2029-30. This suggests it is unlikely that the Government’s declining deficit-to-GDP fiscal anchor will be respected.”

 

– “Based on the long-term baseline projection in Budget 2025, there is limited fiscal room for the Government to reduce revenues or increase program spending while ensuring the federal debt-to-GDP ratio in 2055-56 is at or below its initial (2024-25) level.”

 

If the PBO has serious concerns about the government’s fiscal approaches, that speaks volumes. I agree with its concerns and recommendation.

 

So, explaining this to my six-year-old relative, the government needs to be honest with Canadians about its fiscal projections, anchors and reporting. Canadians need to demand it.

 

They should also be demanding policies that plant acorns that grow into the mighty oak tree – which can live for hundreds of years with its strong foundation. We need fiscal and taxation policies that are like that instead of being short-term focused and solely political (designed to appease a voter base to keep the government in power). Voters need to demand acorn policies. Yes, I know, I’m dreaming. But we need it.

 

If we want policies that grow into oaks instead of collapsing under scrutiny, Canadians need to start asking acorn questions – questions that cannot be dodged by a word salad – and refuse anything less than clear answers and honest accounting.

 

One Comment About Leadership – Leaders, Would You Post Your Expenses on the Fridge?

 

As the leader of my firm for over 30 years, I was often faced with challenges from colleagues. Thankfully, I was able to transition away from some of the micro day-to-day operations (which I didn’t enjoy that much) and move more into direct client matters and strategy building for our firm (which I truly enjoyed).

 

Inevitably, though, I would often be pulled back into some of the day-to-day matters when it dealt with sensitive matters or might require peer-to-peer involvement. A common example would be the approval of out-of-pocket expenses incurred by team members that were seeking reimbursement. Most of that stuff is quite routine and wouldn’t require my leadership. However, once in awhile, the sought-after expense reimbursement would be controversial and would require my approval.

 

One year, such intrusions into my time were becoming more and more and I was getting frustrated. Finally, I called a meeting with my colleagues – partners and associates – to share a simple “trick” that someone had taught me about this matter. I stated that before submitting an expense claim, consider whether or not you would feel comfortable having such expense claims (along with all supporting material like detailed receipts) being posted on the firm’s lunchroom fridge for all to review and see. If the answer was “yes”, then feel free to submit a claim assuming it was otherwise appropriate. If your answer was “no”, then you might want to think twice about making that claim. I then asked how many of my colleagues would feel comfortable with such an approach. Most felt comfortable. But I made it clear that from that date forward, all expense claims would be subject to such a possibility. Including my expenses. And I wasn’t kidding.

 

Guess how many expense reimbursement approvals I had to make from that date forward?  You guessed it. Zero.

 

Leaders, find a way to have your team find the moral high ground. If you can, I’m confident you’ll be able to stay in your lane more often rather than being drawn into time numbing tasks. When people self-regulate with a clear moral compass, you’ll spend a lot less time cleaning up messes that shouldn’t have happened in the first place.

 

One Comment About Economics / Politics – The Notwithstanding Clause – More Than a Political Punching Bag

 

The recent end of the Alberta teacher’s strike – by way of provincial legislation and the invocation of the “Notwithstanding Clause”(“NWC”) – stirred a variety of emotions. In my view, a lot of the “faux anger” was stirred by union, political and media messages that are simplistic in their framing and misleading. 

 

I had conversations with friends and acquaintances who were convinced that teachers were having their rights taken away from them because of the use of the notwithstanding clause.  When I asked them specifically what rights were being taken away from them – the right to strike? – they couldn’t answer the question.

 

And, yes, perhaps the “right to strike” was being struck down by the use of the NWC, but did our Canadian Constitution / Charter of Rights guarantee that when it was brought into law in 1982? I’m obviously not a constitutional lawyer but the “right to strike” guaranteed by the Charter is highly debatable. While the right to strike is often assumed to be protected under the Charter, the courts have only recently interpreted it that way – and even then, it remains highly contextual and controversial.

 

I drove by a small grocery store in Calgary the other day and it had a sign on the side of its store. It said: “Never forget the end of the teachers strike. Notwithstanding”. I’m sure the owner / manager of the store thought they were being clever with their politically charged message. For me, it displayed pure ignorance and an obvious lack of understanding of the NWC.

 

Noted legal scholar, Bruce Pardy (who is also a Senior Fellow of The Aristotle Foundation – a think-tank that I am a founding member of and the current Chair of the Board), recently wrote a very good piece about the Notwithstanding Clause including its historical origins and uses. It is certainly worth a read and might help quell both the temperature and the misunderstandings about the clause.

 

His summary gives much-needed context to why the NWC exists, how it functions, and why demonizing it is short-sighted.

 

From the Key Highlights section of the article:

 

• The “notwithstanding clause” (NWC) of the Canadian Charter of Rights and Freedoms allows Parliament and provincial legislatures to pass laws notwithstanding sections 2 and 7 to 15 of the Charter. Using the NWC prevents courts from striking down the statute as unconstitutional.

• The NWC is a remnant of a historic power struggle between the executive, legislature, and judiciary for the final word on the law.

• Over centuries, power was transferred from the king to legislatures. Legislative supremacy became the foundation of British constitutional democracy.

• Legislatures rule over the king, but also over the individual.

• Charter rights limit the power of legislatures by giving rights to individuals. But courts have the power to interpret what the words mean, creating a system of judicial supremacy.

• Over time, the Supreme Court of Canada has been transforming the Charter from a roster of individual negative rights to an instrument for progressive values and collective rights.

• Critics have long sought to delegitimize the NWC. The argument against the NWC is not that rights are sacrosanct or inviolable, but that only courts, not legislatures, should be able to set them aside.

• The reality is that the NWC is part of the Charter and of the political deal to bring the Charter into being. It is a last resort to give legislatures the final say.

• The danger is not legislative supremacy or judicial supremacy, but supremacy itself. The dispute over the NWC reflects two bad choices: Be ruled by courts or be ruled by legislatures. In Canada, neither institution tends to protect individual liberties. Notwithstanding rights, the state is still supreme.

 

Whether you love or hate the NWC, understanding its purpose is better than shouting slogans. Read the article before making your next clever sign – or risk sounding like the grocery store philosopher who didn’t do his homework.

 

Bonus Comment – Quote From C.S.  Lewis –  Irish  Born Scholar, Author and Novelist – About Integrity

 

“Integrity is doing the right thing, even when no one is watching.”

 

Absolutely agree! Leaders are you doing the right thing when no one is watching? Do you think your team members are too?

 

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.