Budget 2026: A plan with more questions than answers

A federal budget is a literal laundry list. It’s an itemization of everything that Ottawa is taxing, spending and doing, and all that it intends to tax, spend and do in the years to come. The doorstopper released on Thursday runs to more than 500 pages, with more than half a trillion dollars of annual spending and revenues. All comes gently wrapped in political spin.

With so much going on, and so many different constituencies to satisfy, it’s easy for readers of this budget to lose sight of the forest for the trees.

This is the forest.

The government of Prime Minister Mark Carney is, above all else, trying to accomplish one big, difficult, important thing. It’s trying to boost Canada’s long-term economic growth rate, and hence Canadian living standards, by encouraging, enticing, enabling and directing more investment in economically-productive assets.

That’s the main story in Finance Minister François-Philippe Champagne’s second annual budget. It was the chief target of his 2025 budget. It will be at the core of his 2027 budget.

The Finance Minister describes this year’s document as resting on three pillars – “accelerate growth through an investment supercycle,” “make life more affordable for Canadians” and “defend our sovereignty while celebrating our rich cultural heritage.”

The first pillar is the essential one. It’s the economic retaining wall that bolsters everything else. The other two pillars give it political cover, but without long-term economic success – without a future of more investment and more growth – the programs that “make life affordable for Canadians” aren’t fiscally sustainable.

Without an acceleration of growth, we won’t have the strength to be, to use the term borrowed from Quebec’s separatist movement that serves as the title of Mr. Champagne’s budget, maîtres chez nous. Masters of our destiny.

So how’s all that growth supercharging going?

It’s too early to tell.

The Carney government is at least aiming at the right target. And it’s pulling a variety of levers, some more promising than others, to hit it.

Team Carney has spent the last 19 months focused on speeding up approvals for major projects, with Bill C-39 promising “one project, one review, one year.” It’s going to invest significant public money in infrastructure, from pipelines to electrification, and backing industries from AI to defence. And it’s made a bold bet on stimulating more private investment by dramatically lowering business taxes, through the productivity mega deduction announced earlier this year.

The mega deduction allows businesses to write off the cost of some depreciable capital assets in their first year, rather than having to spread the deduction over many years. That effectively lowers the cost to the private sector of investing in productive assets. For Ottawa, the cost of the accelerated deduction is substantial, estimated at $36-billion over five years.

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However, Ottawa claims that every dollar of the tax break will generate between $1.40 and $3 of additional economic activity. The mega business tax deduction is supposed to lead to an average of $22-billion a year in additional economic output. All of which will translate into higher tax receipts.

The budget estimates that Canada’s gross domestic product in 2030 will be $3.975-trillion. But it also estimates that, if federal policies trigger a “higher investment scenario,” the economy four years from now will be $52-billion larger.

Will that happen? We don’t know yet.

There’s no question that the productivity mega deduction is a plausible tool for reaching the goal. But it’s just too early to say how much of a difference it will make in pushing private investment decisions over the line.

Beyond the quest for supercharged economic growth, a budget must stay attached to its fiscal anchors. The Carney government is being widely criticized for having tied itself to the soft anchor of a declining deficit-to-GDP ratio, and the mushy anchor of a balanced “operating” budget, not including capital spending.

The government got a small fiscal gift this year, with the economy performing slightly better than expected; it arranged to spend it. The habit of recent years has been to promise deficit reduction tomorrow, but not just yet. The habit has not been kicked.

On the plus side, a deficit that weighs in at 1.8 per cent of GDP this year and next is hardly a fiscal crisis. But it will cause the debt-to-GDP ratio – now that’s a solid fiscal anchor – to rise, ever so slightly.

And there will be new calls for more “affordability” spending next year. And the year after.

The deficit and debt-to-GDP ratio will only drop if the economy of the late 2020s does somewhat better than expected – that promised supercharge – or if the future brings more spending restraint than the present.