Canada's Finance Minister Francois-Philippe Champagne presented the federal budget on Tuesday, outlining Prime Minister Mark Carney's economic plan. The budget projects a deficit and significant spending, with a focus on strengthening Canada's economy, increasing global competitiveness, and adapting to changes in international relations. It also details spending cuts, shifts in trade policy, environmental initiatives, defence investments, and changes to previous administration policies.
Fiscal Overview and Spending Plan
The budget proposes billions in spending, potentially raising Canada's deficit to C$78.3 billion (£42.6 billion), which would be the second largest on record. The total spending plan amounts to C$280 billion, aimed at boosting global competitiveness and attracting C$1 trillion in investment over the next five years. Funds are allocated across various sectors including highways, ports, electrical grids, digital corridors, defence, housing, and initiatives to enhance productivity.
The plan projects C$60 billion in total spending cuts over the next five years. These cuts include a reduction of 40,000 public sector jobs by the end of 2029, representing approximately 10% of the workforce, to be achieved through attrition, job cuts, and the adoption of AI. Federal ministries may experience up to 15% cuts, expected to generate over C$44 billion in savings. For the first time, the fiscal plan distinguishes between operational spending (day-to-day government expenditures) and capital investment (funding intended for economic growth).
Global Economic and Cultural Realignment
Historically, the United States has been Canada's largest trading partner, accounting for about 70% of its trade. The budget outlines an intention to diversify trade by looking to Europe and Asia, with a goal to double non-US exports over the next decade. Measures include backing for businesses developing new export markets, covering legal expenses and market research. The budget also explores Canada's potential participation in the Eurovision Song Contest.
To enhance Canada's attractiveness for investment, the budget proposes initiatives, including lowering Canada's marginal effective tax rate from 15.6% to 13.2%. Furthermore, C$1.3 billion is allocated over three years to attract international researchers to Canadian universities and support their research, alongside investments in quantum research.
Clean Energy and Environmental Strategy
The budget aims to establish Canada as a "clean energy superpower" by supporting the development of low-emission energy projects, such as nuclear reactors and low-carbon liquefied natural gas. It also promotes the development of carbon capture and storage technologies and enhanced methane regulations. The government reaffirms its commitment to the industrial carbon tax, stating it delivers significant emissions reductions. To encourage investment, the Carney government plans to collaborate with provinces on long-term carbon pricing to provide stability for companies. These initiatives are intended to replace an oil and gas emissions cap introduced by the previous administration and are part of a Climate Competitiveness Strategy.
Defence and Arctic Security
The budget outlines a plan to increase defence spending to meet NATO targets of 2% of GDP this year and 5% by 2035, citing concerns over international security and Arctic threats. A total of C$81.8 billion is allocated for defence spending over the next five years. This funding includes pay increases for the armed forces, investment in digital infrastructure, and development of Canadian supply chains. Additionally, C$182.6 million over three years is designated for the defence ministry to establish space launch capabilities. For the Arctic, C$1 billion over four years is allocated for the development of all-weather, dual-use infrastructure projects to serve both economic and security purposes.
Policy Shifts from Previous Administration
The budget reflects a departure from certain policies of the previous administration. This includes the repeal of the consumer carbon tax, the postponement of the electric-vehicle sales mandate, and the cancellation of a proposed increase on Canada's capital gains tax.
Immigration targets have been adjusted, with a reduction in new temporary residents from 673,650 to 385,000 next year, and to 370,000 in 2027 and 2028. A one-time measure is included to expedite the transition of up to 33,000 work permit holders to permanent residency. Other policies from the Trudeau era that have been ended include the "2 Billion Trees" programme, which had planted approximately 160 million trees by late 2024, and the 2022 luxury tax on vehicles and aircraft priced over C$100,000 and boats over C$250,000. The luxury tax was stated to cost more to administer than it generated in revenue.