Investing for a productive state

Governments need strong, transparent and accountable institutions. Without that, no fiscal framework can deliver public value. That said, fiscal sustainability is bigger than simply balancing the books; for government and public sector it must also mean connecting spending to measurable impact. 

Assessing that value is increasingly complicated in our complex operating environment. Both sides of the debt-to-GDP ratio matter; impact consists of not only the amount borrowed and spent, but also the quantity and quality of growth achieved.

In 2026 and beyond, Canadian governments and public sector organizations will need to take that thinking farther. Measuring the public balance sheet directly reflects the asset-building nature of public investment. Adding a dimension tied to timing helps address limitations such as short-term political visibility, rigidity and reactiveness by accounting for future costs and revenues. 

Even though the International Monetary Fund has recognized the importance of adopting a public-sector balance sheet approach, uptake is limited not just in Canada, but globally. Moving the needly on that front, and building institutions capable of auditing and managing these assets, is key to achieving an effective, modern fiscal state. 

Chapter 1 takeaways

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Chapter 2 takeaways

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Traditional fiscal systems were designed to control spending, keep it within limits, ensure debt sustainability and maintain credibility with creditors. But that’s not enough to remain effective in today’s operating environment.

Looking ahead, fiscal systems must meet their original goals. But they also need to support investment and make scarce public resources go further to generate the strongest possible economic, social and environmental returns. That challenge is only growing as Canada faces major priorities such as the climate transition, defence, security modernization, digital infrastructure and demographic change. Each will require significant capital.

Making the most of public money will require leaders to integrate fiscal discipline with investment logic. Governments must now go beyond balancing budgets to shape markets, mobilize capital and manage risk with an eye to sustaining growth and public value.

This shift is possible. Capital markets can become powerful allies, not by replacing fiscal spending but by complementing it to scale public investment. To get there, the state must adopt an investor mindset that’s grounded in credibility.

Redefine public value to foster an investor mindset and spur private and public sector collaboration

Achieving public value isn’t the sole responsibility of any one group, institution, sector or government. Rather, it requires different economic sectors to come together in pursuit of broad, widely accepted societal goals. An investor mindset is the foundation for this type of collaboration. Why?

Choices around investment, risk and value are made by people and institutions with differing time horizons and incentives. These incentive structures inform which projects get funded, how risks are allocated and the quality of long-term investment outcomes.

To make public money work better, the political economics of fiscal decision-making must evolve. This will require four key groups to adapt their view of public finance decisions and work together towards collective goals:

• Elected decision-makers will need to redefine fiscal responsibility as the capacity to invest wisely, not just spend less.
  
  
• Public officials and institutions that implement policies must build the analytical and organizational capability to allocate resources by impact. They’ll need a refreshed understanding of risk, a means of measuring financial and nonfinancial returns, and the ability to manage public investment portfolios just as effectively as private investors do.
  
  
• Capital markets and investors who finance long-term public priorities require public institutions to demonstrate credibility, transparent rules and a strong link between fiscal choices and economic outcomes. These factors generate much-needed trust that bolsters a willingness to invest in scaling public value alongside government.
  
  
• Broader stakeholders like media, experts and civil society will look for signals that better public spending is as important as higher spending. By influencing fiscal debates and helping people understand what’s going on, these stakeholders shape the national conversation and create even more political space for reform.

Why credibility matters in managing public finance

When markets trust that governments manage risk transparently, allocate resources effectively and maintain long-term discipline, they reward that trust with lower borrowing costs and stronger capital flows. In addition, market participants respond to policy analysis, looking beyond governments budgets and considering not only the extent of borrowing but also what it will be spent on.

What does that look like in practice?

Consider a key priority like the energy transition. When borrowing towards that goal is tied to measurable outcomes, markets perceive related investments not as a fiscal risk, but as a chance to create value. That’s an important distinction. It’s the difference between spending money and deploying capital. And it lays the groundwork for a more prosperous future, in which societal gains and public investments are deeply connected.

It’s time to align what governments can afford with what can attract investment and deliver value for citizens. This framework is the architecture for the next era in sustainable and responsible public finance: one that will be built and sustained through purposeful public and private sector collaboration.

Chapter 3 takeaways

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