Canada’s Budget Deficit Expected to Surge to C$70 Billion Amid Trade War
Analysts predict that Prime Minister Mark Carney will significantly increase Canada’s budget deficit as the country ramps up spending to bolster its military and infrastructure. According to a Bloomberg survey of economists, Canada’s budget deficit is expected to reach C$70 billion ($50.6 billion) this fiscal year, which is more than 2% of the country’s gross domestic product. This estimate is two-thirds higher than the C$42 billion forecast by the government in December.
Trade War Impacts and Spending Plans
The ongoing trade war with the U.S. has had a significant impact on Canada’s revenues, prompting the government to increase spending to support industries and workers. Prime Minister Carney has confirmed plans to run a “substantial” deficit, higher than last year’s shortfall of approximately C$48 billion. The government has outlined billions of dollars in additional federal expenditures to boost defense, increase the construction of affordable housing, and support an economy hit hard by President Trump’s tariffs.
As Parliament resumes, Carney’s task is to convince Canadians and opposition lawmakers that the planned spending will eventually boost the resilience and productive capacity of the economy. Although debt levels relative to the economy are expected to rise, they are still in a better position than most Group of Seven peers. In the survey, 11 of 12 economists expect Canada’s federal net debt as a percentage of gross domestic product to increase over the next two years.
Fiscal Management and Transparency
Carney and Finance Minister Francois-Philippe Champagne are due to reveal their budget in October, which will feature both “austerity and investment.” The prime minister has pushed for major reviews of operational spending in the public service, with the goal of trimming costs by as much as 15%. The government has also ordered reforms of the federal government’s procurement processes. However, more than three-quarters of respondents to the survey believe that the size of the public service has grown too much, after it ballooned to a record in 2024.
Carney plans to separate the budget into operating expenses and capital investments, a decision that has sparked debate among economists. While some see this as a positive move, others are concerned that it will reduce transparency and make it harder to see the total size of the government’s overall fiscal shortfall. As Stuart Paul of Bloomberg Economics noted, “Splitting the budget is just marketing; the ‘investment’ items are still outlays that will require financing.”
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