The spectre of a trade war and slowing economic growth will hang over Ottawa Tuesday as Prime Minister Mark Carney’s government presents its first federal budget.
Finance Minister Francois-Philippe Champagne will present the budget on Tuesday, with experts projecting the government’s deficit skyrocketing this year.
The tabling of the budget will come as an Ipsos poll conducted exclusively for Global News found 42 per cent of respondents want the budget to prioritize helping with the increasing cost of everyday expenses.
That number far outpaced Carney’s stated priorities for transforming the Canadian economy — including investing in the Canadian military and national defence (15 per cent), funding major projects and infrastructure (15 per cent), and even measures to mitigate the impact of U.S. tariffs (25 per cent).
Carney has said the government plans to “transform” the economy, in part by doubling Canada’s non-U.S. exports over the next decade.
Speaking in a prime-time address to students at the University of Ottawa last month, Carney said Canadians will have to make “sacrifices.”
“To be clear, we won’t transform our economy easily or in a few months,” he said.
“It will take some sacrifices, and it will take some time.”
He was later asked what those sacrifices would be, but he refused to elaborate.
“We’ll have a budget and all aspects of the budget will reveal that,” he said.
However, Carney reiterated that the federal government would “maintain support to Canadians, particularly those who are most vulnerable.”
“Whether it’s health transfers to the provinces or child-care support, including working together with the province of Ontario, dental care, national school food program … we’re going to maintain those,” he added.
The budget will also include an additional $3.6 billion spent on expanding Employment Insurance (EI) benefits for workers affected by U.S. President Donald Trump’s tariffs, the government said last week.
Champagne has said “adjustments” are coming to the public service as Ottawa looks to trim its spending in the fall budget.
When asked whether the spending reduction plan might include public service layoffs, he said the government “will find adjustments.”
The pace of public sector growth during the COVID-19 pandemic was “not sustainable,” he said.
“I think a leaner and more efficient government to provide services to Canadians, that is needed as you’re looking to rebuild this nation,” Champagne said.
Foreign Affairs Minister Anita Anand said the changes will include Global Affairs Canada, adding that it is necessary to cut what she calls red tape and inefficiencies.
The Public Service Alliance of Canada (PSAC) has warned that around 70,000 public sector jobs could be at risk from the Carney government’s upcoming budget.
“Carney’s upcoming federal budget is a recipe for disaster. Our world has changed since COVID-19, and public services are stretched thin. Gutting the services that families, veterans, and the elderly rely on now is reckless,” PSAC said in a statement posted to social media.
The deficit from the upcoming budget is projected to be the highest in 30 years, barring the Great Recession and the COVID-19 pandemic, Desjardins has warned.
Ottawa’s fiscal watchdog Jason Jacques now projects the federal government will post an annual deficit of $68.5 billion this year, up from $51.7 billion last year.
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He said in a new report that he expects federal debt-to-GDP is no longer on a declining path over the medium term — a ratio that previously was a key fiscal anchor for the federal government.
A Desjardins report said the deficit could be upwards of $70 billion
The firm cites data measuring the expected ratio of budget deficits as a percentage of gross domestic product, which means how the government’s debt compares to the amount the economy produces.
In its federal budget preview, Desjardins says the rising government deficit will be the result of an increase in spending and a decline in revenues.
NATO allies have agreed to hike their defence spending target to five per cent of annual GDP by 2035.
“As part of this 5% pledge, Canada will invest 3.5% of GDP for core military capabilities, expanding on our recent investments,” the government said on June 25.
The new NATO agreement will see the nation’s annual defence budget increase to roughly $150 billion.
Defence Minister David McGuinty said Canada will allot $9 billion in additional defence spending by March next year.
This will include $2.6 billion spent on recruiting and training personnel, $844 million on repairing and sustaining equipment and $560 million on modernizing technology and countering cyber threats.
The government plans to spend $2.1 billion to “lay the groundwork for a comprehensive Defence Industrial Strategy (DIS)” and reducing red tape. Another $2 billion is expected to go towards expanding Canada’s defence relationships beyond the United States.
Desjardins says Canada’s goal to increase spending on defence will “take centre stage” in the budget, combined with a drop in revenues after removing most counter-tariffs on the U.S. and tax cuts to individuals just before the summer.
“These spending increases wouldn’t have as substantial an impact on the deficit if it weren’t for the accompanying reduction in tax and tariff revenues. By our estimate, the budget shortfall in the current fiscal year could exceed $70 billion — almost double that projected in the Fall Economic Statement 2024,” a Desjardins forecast said.
Included in that new spending is expected to be a new Defence Investment Agency with the aim of centralizing defence procurement and purchasing equipment for the Canadian Armed Forces at a faster pace.
Canada will also boost pay for military service members by as much as 20 per cent and offer a series of benefit increases and bonuses that will be rolled out over the next 12 months.
When the budget is presented on Tuesday, it will also include Canada’s Immigration Levels Plan 2026-28.
In his speech at the University of Ottawa, Carney said “this budget will include Canada’s new immigration plan to do better for newcomers and for everyone.”
Each year, the government announces the number of permanent residents it plans to bring in over the next few years. Last year, the government also started setting targets for temporary immigration.
“This government is getting immigration under control, with asylum claims down by a third, and even temporary foreign workers down by more than 70 per cent this year,” Carney said, adding the plan will “match immigration levels with our needs and our capacity to welcome them.”
The budget will also allocate $97 million on a Foreign Credential Recognition Action Fund to address help sectors experiencing labour shortages
This will be done for doctors, nurses and other health-care professionals and construction workers, the government said.
During the election campaign, Carney promised a one per cent drop to the marginal tax rate for the lowest tax bracket.
There are a total of five marginal tax brackets, which are scaled based on the amount of income earned by an individual or household.
This means the more someone earns, the more they are taxed. The less an individual or household earns, the smaller the percentage of income deducted.
The lowest tax bracket as of now is 15 per cent of all qualifying income earned up to $57,375.
Carney’s promise would bring that 15 per cent down to 14 per cent.
The federal government will also file taxes automatically for low-income Canadians, making them eligible for government benefits, Carney said.
The Canada Revenue Agency (CRA) will begin automatic tax filing for about one million people in 2027 (for the 2026 tax year), Carney’s office said, adding that the number is expected to reach 5.5 million by 2028.
Canada’s new federal housing agency — Build Canada Homes (BCH) — will start constructing new homes next year. Carney said this includes plans to build 4,000 homes on six federally owned sites.
Build Canada Homes will have an initial budget of $13 billion so that “builders have the financing they need to get big housing projects completed,” the federal government has said.
The agency will essentially act as a developer, facilitating the construction of new homes by the private sector. Carney has said BCH will focus on prefabricated factory-built homes.
While the agency launched in September, longer-term funding plans and other efforts to speed up housing could be part of the budget.
