Carney’s ‘ambitious’ but ‘risky’ budget eyes investment in uncertain world

The Liberal government is significantly boosting federal spending in an attempt to draw in business investment and address the affordability struggles of Canadians just days after Prime Minister Mark Carney said that the world is becoming “more dangerous and divided.”

It’s a document experts say is both “ambitious” and “risky” amid significant global unknowns and volatility that has left consumers struggling with the soaring cost of just about everything.

Carney’s sophomore budget commits an additional $151 billion over five years in “supports” for Canadian households, businesses and other levels of government.

That money is entirely taken from better-than-expected government fiscal projections, both higher than expected revenues and tightened government operational spending, which gave Finance Minister Francois-Philippe Champagne $158 billion to play with the planning horizon.

The decision to use the windfall for spending gave the government room to take some big fiscal swings while keeping the deficits relatively stable at $62.3 billion in 2026-27 and declining over the five-year spending plan.

“With solid revenue growth, and (a) shift towards capital investment and clear strategies, we are in a position to transform our economy towards stronger growth and productivity,” Champagne said in his budget speech Thursday.

“Economic growth gives us the means. Our plan is to turn that growth into greater opportunity, greater security, and a better life for all.”

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Champagne is selling the budget as built around three broad pillars: boosting business investment, addressing the affordability crunch, and defending Canadian sovereignty while celebrating shared heritage.

To attract private sector investment, the government is strategy is centered on a productivity “mega deduction,” which allows businesses to immediately deduct the full cost of new investments, the Canada Growth Incentive to encourage entrepreneurs to reinvest capital gains into new businesses, and billions toward research and development.

Taken together, the government is calling these an “investment supercycle.” The hope is to both boost Canadian business investment while attracting $1 trillion in foreign direct investment over the coming years.

Jimmy Jean, the chief economist with the Desjardins Group, characterized the budget as “risky” but said it’s clear that the government is leaning heavily into the push to drum up investment and grow the economy.

“Really they’re going all in on this. So very ambitious,” said Jean.

“But if they don’t execute, then, it means that our debt metrics will have considerably deteriorated and it will be up to a workforce that is aging to support all of that into the future … There’s a lot at stake in terms of the execution part of it.”

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Taken together, the government is spending $67 billion on various initiatives aimed at enticing investment and strengthening the economy.

The budget comes just two days after the U.S. midterm elections that saw voters deliver a stark rebuke to the administration south of the border over the soaring cost of living caused by the war in Iran and the trade war, as well as growing global unrest in India, France, Italy, and multiple European countries over deteriorating public services and prospects for youth.

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The budget includes multiple consumer and affordability measures including changes to simplify the tax system for individuals and businesses, multiple new tax credits, raising the limit on consumer savings covered by CDIC insurance from $100,000 to $250,000, making the Canada Strong Pass permanent, making museum admission free for those under 25, allowing the intergenerational farm transfer to be used for nieces and nephews, and enhancing the Canada Groceries and Essentials Benefit, which would boost the benefit by $339 for a single person and up to $679 for a couple with two children.

The government is also boosting the Nutrition North program by $610 million over five years to address astronomical food costs for northern Canadian communities, and making the federal caregiver credit fully refundable.

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Still, the amount allocated on affordability measures is comparatively small, Jean says.

“It seems like, affordability is more treated from the lens of what they are provided for: for groceries or for rebates. Certainly, they extend some of that, but they’re not going much further in terms of, addressing some of the still-acute cost of living issues many Canadians are dealing with,” Jean said.

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By far the biggest change in this year’s budget is that the government is providing hard figures on their plans to dramatically increase defence spending. After years of lagging behind, Canada hit the NATO target of spending two per cent of GDP on defence this year. Carney has committed to upping that to five per cent of GDP by 2035.

Based on government’s plan Thursday, core defence spending will increase from $75.1 billion in 2026-27 to $99.2 billion in 2030-31 — making defence, along with Old Age Security and debt service charges, among the most significant line items in the federal budget.

While it’s mentioned throughout the document, trade tensions with the U.S. — the single largest political issue of Carney’s prime ministership so far —is not a central focus of the budget document. In fact, the document opens by noting that the economic headwinds created by Donald Trump’s trade war have been largely offset by stronger-than-expected economic performance to start 2026.

But Kevin Page with the Institute for Fiscal Studies and Democracy said the government’s highlighting of its fiscal position does not take tell the full story.

While deficit numbers remain relatively stable over the budget’s planning horizon, Page noted, the federal government’s financial requirements — including loans and investments — is significantly higher. The cost of servicing the federal debt is likewise increasing over the budget’s planning horizon.

That’s going to reduce the federal government’s room to maneuver in future years, Page warned.

“We know finance ministers and cabinet ministers that are looking to fund new initiatives going forward, they’re going to have less and less fiscal room because the fastest (growing) spending component is interest on the public debt,” Page said in an interview.

In a social media post Thursday, Conservative Leader Pierre Poilievre blasted the spending plan as a “credit card budget.” The new debt will lead to “higher inflation and interest today and higher taxes tomorrow,” he said.

“Canadians will pay more for food, fuel, and homes. Budget should be named Mastered by Debt,” Poilievre posted, playing off the budget’s “Masters of our Destiny” title.

NDP Leader Avi Lewis described the budget as “Christmas came early for the billionaires.”

“I know what they were going for with the ‘masters of our destiny:’ a kind of old school, colonial, pioneer spirit. When I think about the masters of our destiny detailed in the policies and budget, I think of the masters of the universe investors of prime minister’s investment summit.”

“Budgets are expressions of a government’s priorities. The single biggest item in this entire budget is a $36 billion mega-deduction. That’s not what Canadians are experiencing as a crisis in the economy today. Where is the mega deduction for my grocery? Where is the mega deduction on my cell phone bill, on my rent or mortgage?” Lewis added.

In his budget speech, Champagne noted that Canada has seen “what happens around the world when governments lose their fiscal room to manoeuvre.”

“Choices become harder,” Champagne’s speech read.

Speaking to reporters Thursday afternoon, Champagne downplayed concerns over debt servicing costs — noting that things aren’t as bad as in the late 1980s, when the Canadian government was in a fiscal crisis that led to massive cuts to public spending in the early 1990s.