IFSD Fiscal Credibility Assessment Liberal Party of Canada Platform 2025

Summary

The Institute of Fiscal Studies and Democracy (IFSD) assesses the fiscal credibility of election platforms of the major parties according to three principles:

1. Use of realistic and credible economic and fiscal assumptions;
2. Responsible fiscal management;
3. Transparency.

The principles and scoring criteria are detailed in IFSD’s platform assessment framework, originally developed ahead of the 2019 federal election.

These assessments are designed to test for coherence between policy proposals and fiscal and economic plans, as well as the realism of assumptions.  Platforms are political documents and are expected to provide reliable and realistic proposals, making them different than budgets or government documents that have different requirements for accuracy, realism, and transparency.   

The 2025 election takes place in an historic context. 

Global economic growth is expected to slow due to the imposition of US tariffs and increased policy uncertainty and geo-political tension.

The OECD (March 2025 interim economic update) highlights risk for macroeconomic volatility ahead including market corrections and an unexpected downturn. Their advice is for governments to take action to preserve fiscal sustainability and ensure fiscal room to address future shocks and spending pressures. Efforts are required, according to the OECD, to reallocate spending towards activities that will support longer term growth.

Canada is on the front line of the US trade war given the strong trading relationship and dependency on the US market. Public threats by President Trump on Canada’s political sovereignty has shocked and unified citizens. The historic political and economic challenges are taking place when Canadian governments continue to address challenges related to affordability from the fallout of the global pandemic and a series of longer term policy challenges related to productivity, income and wealth disparity and climate change. 

IFSD finds that the Liberal Party Platform merits an overall Good rating. The overall score is 35/44 across the three principles (80 percent grade).

The Liberal Party of Canada’s 2025 federal election platform, Canada Strong, proposes measures to strengthen sovereignty, the economy, and social well-being. There are 4 priorities – Unite, Build, Protect and Secure. There are more than 100 initiatives with direct fiscal consequences. Over the next four years the Liberal Platform proposes new revenues and savings totalling $52 billion and new spending measures (operating and capital) totalling $129 billion. This results in higher debt of $83 billion over the four-year horizon.

The Liberal Platform utilizes the PBO March 2025 Pre-Election outlook which does not incorporate the economic impact of the US tariffs and global fall-out. Higher Canadian import duties on US goods and services are assumed for one year, 2025-26. At this juncture, it is an optimistic planning baseline. The budgetary deficit is projected to increase to $63 billion (2 percent of GDP) in 2025-26 and fall modestly to $48 billion (1.4 percent of GDP) in 2028-29. The debt-to-GDP ratio remains relatively flat in the 42-43 percent range over the next four years. This ratio is below the recent peak in 2020-21 (COVID related) of 47.2 percent and much higher than the modern low of 28.2 percent in 2008-09.

A notable feature of the Liberal platform is the distinguishment of operating and capital spending. Over the next four years increased operating and capital expenditures on an accrual basis are balanced (about $65 billion); on a cash basis, capital expenditures are about two times higher than operating. The policy focus is largely capital spending to address infrastructure gaps and promote longer term growth. New social programs implemented by the previous government with support from the NDP are maintained. There are notable planned spending savings over the medium term that are re-allocated to new initiatives to mitigate an increase in debt and interest charges.

The principal budgetary constraint is a commitment to balance the operating budget in four years, 2028-29. For frame of reference, the PBO baseline outlook projected an operating balance next year, 2026-27. There are no explicit contingency or prudence reserves around the target. The platform acknowledges that the positive economic impact from higher capital spending has not been formally incorporated into a revised baseline. There is a commitment to lower the debt to GDP ratio over the medium term.

The Liberal Policy Platform was released on April 19, 2025 – after the leaders debates; during the advanced voting period; and eight days before election day.

1.1 Platform uses the latest PBO baseline economic and fiscal forecast.

Liberal Party Platform score: 3/4

• The PBO Pre- Election (March 2025) baseline is used in the platform’s fiscal and cost analysis and fiscal planning framework for deficit and debt calculations.
• It does not include economic impacts for tariffs. Revenues from higher import duties on US goods are included. It is considered an optimistic planning scenario, at this juncture.

1.2 Platform articulates economic challenges and corresponding measures.

Liberal Party Platform score: 3.5/4

• Broad national interventions are defined to meet challenges to Canada’s sovereignty, economic, and social security.  Measures are defined across four categories of activity: unite, secure, protect, and build.
• The measures address infrastructure and human capacity to generate long-term gains. Results, however, will not be immediate.
• Aggregate economic stability is maintained through public intervention resulting in higher budgetary deficits.  Increases to the deficit are substantiated through sovereignty protecting, e.g., presence in the North, and national building measures, e.g., emphasis on energy infrastructure.

1.3 Platform articulates fiscal challenges and corresponding measures.

Liberal Party Platform score: 3.5/4

• The platform separates operating and capital spending and implicitly suggests that tax revenues must fund operating spending, but, as necessary, the government will borrow for capital investment.
• The platform does not identify rising debt and deficit as fiscal challenges and suggests that in the current global economic turmoil increasing public investment is necessary.
• The platform assumes that revenues from higher tariffs in the first year and increased productivity, and efficiency due to higher investment will soften the fiscal impact. Budgetary deficits are higher than the PBO pre-election baseline.
• The platform makes use of reallocation through a proposed spending review to limit the proposed total spending increases. 

1.4 Platform accounts for global uncertainty and threats from the US.

Liberal Party Platform score: 3/4

• The measures in the platform, especially the significant increase in capital investment, aim to meet the challenges of the current economic turmoil, but the platform does not adjust the baseline economic and fiscal projections for the tariff shocks. Tariff impacts on revenues are assessed for one year only. 
• The platform assumes economic and fiscal forecasts improve in the next fiscal year, and does not include a risk provision.

2.1 Platform commitments are consistent with a defendable medium-term fiscal strategy and framework.

Liberal Party Platform Score: 3.5/4

• The platform’s commitments are aligned to an optimistic view of the medium-term fiscal framework.  There are downside risks to both economic and fiscal forecasts.
• Budgetary deficits decline from 2 percent of GDP to 1.4 percent over the 4 year planning horizon. They are higher than the PBO baseline but lower than projections for most other OECD countries. A 2 percent budgetary deficit in 2025-26 would be considered moderate. It will be difficult to achieve if the economic outlook is worse than anticipated
• The expressed goal of the platform is to meet sovereignty, economic resilience, and affordability through various measures including significant increase in public capital investment

2.2 Platform’s commitments maintain long-term fiscal sustainability.

Liberal Party Platform Score: 3/4

• While there is an increase to the deficit and debt, the platform commitments are fiscally sustainable over the long-term (debt-to-GDP ratio is expected to decline in the long run) but, the risks associated with the current economic turmoil could undermine long-term fiscal sustainability.

2.3 The fiscal planning framework includes adequate provisions (prudence) for fiscal risks, economic risks, and unforeseen events.

Liberal Party Platform Score:  2/4

• There is no consideration of prudence and risk in the optimistic assumptions of the economic and fiscal outlooks. The platform provides analysis on potential positive economic impacts from additional capital investment that could boost growth over the medium to long-term.
• Overly optimistic implementation timetables may provide resources through lapsed funding.

2.4 The fiscal planning framework contains fiscal room to address challenges to Canadian sovereignty.

Liberal Party Platform Score:  3/4

• The platform includes various provisions to address Canada’s territorial and economic sovereignty.
• Fiscal space remains to address unforeseen measures (or resources would be reallocated to achieve them).

3.1 Platform provides economic and fiscal outlook for five years (2025-29) with details on key indicators, which incorporate the proposed policy measures.

Liberal Party Platform score: 3.5/4

• The platform provides a fiscal outlook for four years. Analysis is provided on economic multipliers that could result from higher capital investments.

3.2 Platform provides sufficient detail on the proposed measures.

Liberal Party Platform score: 4/4

• The proposed measures include priorities and objectives. There are several instances where timelines for implementation are included. However, timelines to achieve results in various instances, e.g., capacity building, will take years to materialize.
• Several large measures are established as funds (e.g., Nation-building Project Fund, Trade Diversification Corridors Fund), seemingly capping fiscal exposure rather than depending on estimates of demand.

3.3 Platform provides a clear implementation plan for key policy measures.

Liberal Party Platform score: 3/4

• The platform privileges spending on target issues: sovereignty, economic, and social security. 
• The implementation of key measures are mostly defined.  Some considerations, e.g., the procurement of ice breaker ships, require closer analysis of implementation plans.  The assumption that the ships would be operational within a year implies that the ships are ready for purchase.
• The platform does not discuss the dependence on state capacity to implement the measures.
• The platform includes one of the most significant program reviews, since the 1990’s, as a source of funds (e.g., $28 billion over 4 years).  As a strategy for reallocation, it will further emphasize the shift in spending away from social programs towards economic, defence and security. However, should it be implemented as an administrative efficiency exercise, it will likely struggle to hit its fiscal target.