Desjardins Group estimates the upcoming federal budget on Nov. 4 will show deficits at a level not seen in 30 years, driven by higher spending and lower revenues, according to a report released on Wednesday.

For the 2025-2026 fiscal year, Desjardins is projecting a $70-billion deficit, although the report acknowledges some estimates from other sources have been as high as $100 billion.

“There is a lot to unpack in the run-up to what will be a truly unprecedented federal budget,” said the report. “Deficits could rise to levels not seen in decades outside of a recession or pandemic, and the debt-to-GDP ratio is likely to be headed in the wrong direction.”

The report said the loss of key revenue sources such as the removal of counter tariffs on U.S. goods, an income tax cut for the lowest income earners, the cancelation of the digital sales tax, the rolling back of the increase to the capital gains inclusion rate and the removal of the goods and services tax (GST) for first-time homebuyers will help the economy, but the benefit will not offset the revenues that will be lost.

Prime Minister Mark Carney has directed federal departments to find 15 per cent of operational savings over the next three years. The report said this will garner $15 billion of savings in the first year, $20 billion in the second year and $30 billion of savings in the 2028 fiscal year.

“The scale of the planned savings harkens back to the Deficit Reduction Action Plan (DRAP) initiated by the Harper government. However, the planned savings — and likely staffing reductions — could be even larger than those in the DRAP,” the report said.

Carney has also promised to accelerate spending on capital projects such as infrastructure, defence and housing initiatives. Finance and national revenue minister François-Philippe Champagne said the upcoming budget will present a plan to transform Canada’s economy and will include generational investments.

The Liberal government will also present a new capital budgeting framework, which will separate operational spending (i.e. salaries for public employees, health and social transfers etc.) and capital spending (i.e. transfers to capital projects, corporate income tax incentives etc.) into two different categories. Finance Canada confirmed the budget will still present one deficit number.

The report said the government should include assessments for the expected rates of return on those capital investments, in order to ensure whether the government is getting value for money. The report also said the new capital framework poses communication and market risks.

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“Infrastructure projects typically involve significant upfront spending, with returns that aren’t guaranteed or that only materialize over longer time horizons,” the report said. “As such, debt-to-GDP metrics may worsen in the near term, even if long-run benefits are positive.”

This change in framework also comes at time of potential downside risks to the economic outlook and could prove a delicate exercise, as it relates to Canada’s fiscal credibility among credit rating agencies.