Carney’s disappointing budget doubles down on spending

The Carney Liberal government announced their budget for the 2026-27 fiscal year this week, and it looked a lot like last year’s budget. The main features of the budget included a continuation of big spending, with $142 billion in new spending and tax incentives, more government programs, zero broadly-based tax cuts and high budgetary deficits in excess of $50 billion for the next five years. From this budget, it appears that having a so-called prudent former central banker running the country doesn’t seem very different from the completely incompetent Trudeau being in charge. 

The deficit for the 2026-27 fiscal year is projected to be $62.3 billion. This is slightly lower than that contained in the Spring 2026 update but still very large. As it is a forecast, we have yet to see whether it will come in at that level or higher, as is usually this case with these Liberals. The budget also shows that the government received a windfall of unexpected revenue from higher oil prices and an increase in income tax revenue. Instead of being sensible and using some of this extra revenue to reduce the deficit and pay down debt, the government has foolishly chosen to spend virtually all of it. There is no plan at all to balance the budget in the next few years. 

With higher deficits and debt, and increasing interest rates, the amounts needed to merely service the debt will also increase. Debt service costs this year are estimated to be over $60 billion, which is more than the federal government transfers to the provinces for health care. By 2030, the budget indicates that 14 cents of every dollar will be spent on debt service. Although the Liberals claim that this level of debt is “manageable” for Canada, the fact that the numbers continue to climb should alarm every Canadian. Unfortunately, history repeatedly shows that deficits and debts that appear manageable today can quickly turn into a financial crisis, as Canada experienced in the mid-1990s. 

As affordability remains a top-of-mind issue for Canadians, the Liberals included a one-time top-up of 50 per cent to the former GST rebate, now renamed as the Groceries and Essentials Benefit. In a supposed first-world country, it is disgraceful that a government should have a policy to subsidize food or essentials costs. Instead, a personal income tax reduction should be implemented so that individuals have the dignity and independence of being able to provide for their own families instead of being reliant on government handouts. 

For the last few weeks, the government said that there would be positive measures for small-and medium-sized businesses (SMEs) in the budget. This Liberal government has to date been focussed on the large corporate sector with seemingly little interest in the fortunes of smaller firms, despite the fact that sector represents about half of the economy and a significant proportion of net new job creation. Government predictions of more benefits for small firms in this budget were therefore a very welcome change and raised expectations. However, having now seen the budget, the policies devoted to smaller businesses were a big disappointment. 

Two key measures that could have provided short-term relief to SMEs were tax reductions and help with the tariffs being imposed by the U.S. There were no tax cuts for small firms, and existing tools to help businesses deal with tariffs are limited to businesses with over $1 million in sales, which cuts out many SMEs. There were some positive policy changes in the budget, such as the previously-announced Mega Deduction and enhancements to the Small Business Rollover measures to encourage investment. The capital gains exemption of $15 million under the new Canadian Growth Incentive could be positive, yet it excludes many sectors of the economy and has such complex rules it will discourage many SMEs from applying for it. 

There are many more spending targets in the budget, on everything from the perennial spending on trying to ensure First Nations reserves have clean water – which never seem to succeed despite many billions spent – to even more money devoted to the CBC. The various programs intended to boost investment in Canada such as the Mega Deduction and the Canadian Growth Initiative will take some time to have an impact, and the jury is still out as to whether they will achieve the intended results. As Carney has still left in place many of the Trudeau-era policies that have damaged Canada’s economy, it remains to be seen whether layering new policies on top of the old bad ones will actually have a positive effect. 

A consistently key orientation of the Carney government has been a belief that economic growth comes from government in the form of subsidies, top-down centralized planning with decisions being made by politicians instead of the marketplace. The reality that this approach has always been a disaster has not discouraged Carney from trying it out once again. The fact that the budget contained no broadly-based tax reductions indicated the Liberals continue to favour overtaxing both businesses and individuals, then doling out portions of this tax revenue as the government sees fit, not as taxpayers would choose to spend their own money. One of the key barriers to attracting investment back to Canada is the ongoing uncertainty of having a government that picks winners and losers according to its own political whims and partisan leanings, not on the basis of market and economic criteria. This budget will do nothing to remove that barrier.