Prime Minister Mark Carney will deliver his second federal budget on Thursday as the Liberal government reveals next steps in its plan to support the country through an affordability crunch and the trade war.
Carney has spent much of the first 20 months of his prime ministership retooling the Canadian economy with an eye toward growth. Finance Minister François-Philippe Champagne is promising more details on what’s to come next to further boost economic expansion.
Speaking to reporters on Wednesday while helping make his own shoes — continuing the budget tradition of finance ministers getting a new pair before delivering an economic update — Champagne said this document will reveal how Canada will become “masters of our destiny.”
“You need to invest in growth, you need to invest alongside businesses. You also need to invest in sovereignty,” he said.
Champagne holds up a boot during a tour of the Pajar shoe factory in Montreal on the eve of the budget. (Graham Hughes/The Canadian Press)
Some indicators suggest those investments are paying off: the Bank of Canada and the International Monetary Fund are projecting roughly two per cent GDP growth next year. The OECD expects growth to be lower than that, but still higher than all other G7 countries except the U.S.
The unemployment rate, which has seen some relatively wild swings amid the trade uncertainty, is lower than it was a year ago.
Foreign direct investment into Canada is high and the government’s recently announced “productivity mega-deduction,” a big ticket item that lets companies write off investments in a tax-advantaged way, is designed to spur things along even more.
Canadians will also get a chance to take some ownership in the projected growth: the budget may include details on how individual investors could eventually buy into the Canada Growth Fund, a new Crown-controlled sovereign wealth fund that will take ownership stakes in some major projects and businesses.
Affordability measures
Still, Champagne suggested more work is needed on the issue many voters tell pollsters they care about most: the rising cost of living, which worsened late last month when the Bank of Canada raised interest rates to tame inflation.
“Mark Carney remains one of the most popular prime ministers we’ve ever had. And all of that is happening in the context of people still saying that affordability is the top issue,” Abacus Data pollster David Coletto said in an interview.
“But it doesn’t mean that that immunity lasts forever. People still need to feel that this government cares about those day-to-day issues.”
The most recent Statistics Canada jobs data also shows that while average hourly wages rose about 2.3 per cent year-over-year as of September, that fell short of the three per cent climb in consumer prices reported over the same period.
Canadian food bank usage hit record highs this year as some people struggle to buy the groceries they need.
Food bank usage continues to grow in Canada. (Sammy Kogan/The Canadian Press)
The government has kept a lid on immigration since coming into office, dramatically dialling back the number of temporary migrants to tamp down housing prices.
That may have worked to some extent: national average home sale prices are 22 per cent lower than they were at the March 2022 peak while rent has dropped about nine per cent from its all-time high in May 2024, according to the latest industry figures.
The budget will reveal immigration targets for the coming two years.
The Conservatives have hammered the government for rising prices, demanding Carney do more to help consumers shoulder energy price increases largely driven by the U.S. and Israel-Iran war.
They also want Ottawa to cut immigration levels further, framing it as part of the affordability agenda.
“Save you money — that’s our mission as Conservatives, and it’s our demand for the budget,” Conservative Leader Pierre Poilievre told reporters on Wednesday, reiterating his call for further tax relief on energy products.
“After a year and a half of Mark Carney, everything’s worse.”
Asked about the U.S. midterm election results, Conservative Leader Pierre Poilievre said ‘Americans hate tariffs.’ Suggesting Canada is the most popular country with the American people, Poilievre offered to work with Prime Minister Mark Carney to ‘leverage’ that goodwill to get a trade deal.
NDP Leader Avi Lewis, meanwhile, wants Ottawa to create a wealth tax, build 50 government-run grocery stores and make “a nation-building investment in health care.”
The government is sensitive to the charge that it hasn’t done enough to address affordability concerns, routinely pointing to last year’s income tax cut, the move to scrap the consumer carbon tax and temporarily lifting federal levies on gas as ways it has helped.
NDP Leader Avi Lewis proposed on Wednesday a ‘wealth tax’ starting at one per cent on those with assets worth $10 million or more in a plan he suggests could generate $40 billion in annual government revenue. ‘It is time to tax wealth in Canada, not merely income,’ Lewis said.
But after U.S. voters handed Trump’s Republican Party a shellacking in this week’s midterms, partly due to higher prices, politicians in this country are clearly attuned to demands that more needs to be done to avoid a voter backlash.
“We need to take care of Canadians, make life more affordable,” Champagne said.
“We’ve already taken a number of measures to support Canadians, but at the same time we understand we need to support them now.”
Deficit management
While Ottawa rolls out new initiatives it’s also mindful of the deficit, which could be smaller than expected thanks to higher oil prices that have been a huge boon to government coffers.
Even if smaller than planned, the figure is still expected to be higher than the historical norm before the 2020s — and the parliamentary budget officer expects those figures to remain elevated for years.
The spring economic update pegged the deficit at $75 billion for the 2026-27 fiscal year.
This number will almost certainly change after accounting for energy-related revenue spikes and increased spending on initiatives like propping up tariff-hit industries like autos and steel.
The PBO projects the deficit will be about $63 billion this year before rising to $70 billion in the next, further adding to the federal debt, which is increasingly costly as interest rates rise.
Carney has rejigged how the government reports its spending, dividing federal outlays into two buckets: day-to-day operational spending and capital infrastructure. The government is expected to lay out its plan to balance the operational budget by 2027-28.
Canadians will also learn more details in this budget about the government’s plan to privatize some of Canada’s major airport operations. Those sales would result in a cash windfall, which could then be used to spend more on other planned capital-intensive infrastructure projects or pay down debt.
Whatever comes about, Poilievre isn’t buying it: “Mark Carney is out of touch. His spending is out of control. Canadians are out of money.”
Defence spending
Canadians will likely get a better sense in the budget of how much the Carney government’s defence buildup is costing, where the money is going and where it will be coming from.
Tens of billions of dollars have been poured into national defence over the last year and a half to meet the old NATO benchmark of two per cent of the gross domestic product.
The Western military alliance is now asking members to increase spending further to five per cent of GDP (3.5 per cent direct military expenditures and 1.5 per cent on defence infrastructure) by 2035.
At the conclusion of the recent NATO summit in Turkey, Carney pledged his government would offer a full accounting for taxpayers.
“We will lay out in the budget an update with the decisions we’re taking, where the fiscal track is, where the defence spending is, how we’re spending the one-and-a-half per cent on defence-related expenditures, resilience expenditures, and that’s the right time to do it,” Carney said.
Prime Minister Mark Carney has said the budget would provide an update on how it’s meeting NATO defence spending targets. (Nicole Osborne/The Canadian Press)
Defence analyst Dave Perry of the Canadian Global Affairs Institute said details on how Canada met the two per cent target and what the pathway is to five per cent are long overdue.
He said there were 215 words devoted to defence spending in last year’s budget, which was a disappointment in terms of explanation and justification.
The government, he said, needs to be more specific about what equipment it intends to buy and how it will pay for it.
