Canada’s budget deficit will more than double to C$78.3 billion as the government counters US tariffs with major infrastructure and defense spending.
OTTAWA: Canada’s budget shortfall will more than double this year as Prime Minister Mark Carney’s government pours billions into countering US tariffs, boosting defense spending and diversifying trade.
The deficit for 2025/26 will surge to C$78.3 billion from C$36.3 billion last year, representing a 116% increase.
Finance Minister François-Philippe Champagne presented the budget proposal to parliament on Tuesday, calling it necessary to weather economic uncertainty.
“We will not lower our sails,” Champagne declared. “We will raise them – to catch the winds of economic change.”
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The budget allocates over C$280 billion over five years for infrastructure, defense, housing and productivity enhancements.
Infrastructure and productivity growth receive the largest allocations at C$115 billion and C$110 billion respectively.
Economists questioned the fiscal prudence of the pro-growth investments despite the deficit landing near the lower end of expectations.
“It is hard to call the budget prudent,” said BMO Capital Markets senior economist Robert Kavcic. “It is only prudent because everybody’s worst case was a massively high deficit.”
The government faces pressure from US President Donald Trump’s tariffs that are crippling Canada’s steel, auto and lumber sectors.
Carney’s minority government depends on the small New Democratic Party to pass the budget and avoid triggering an election.
Champagne outlined two fiscal anchors: balancing the operating budget by 2028/29 and maintaining a declining deficit-to-GDP ratio.
The deficit-to-GDP ratio is projected at 2.5% for 2025/26, up from 1.2% last year, before tapering to 1.5% within five years.
The government plans C$60 billion in savings through public sector workforce reductions and improved tax collection.
Some 16,000 government jobs will be cut this year, with a total of 40,000 reductions planned by 2028/29.
Budget projections show GDP growth of 1.1% in 2025/26, averaging 1.6% through 2028/29.
Economist Robert Asselin called the budget “a good start” that signals the right balance between investment and fiscal discipline. – Reuters
