Tuesday’s federal budget will jumpstart Canadian economic growth, but many of its benefits could take several years to materialize, according to several economists surveyed by the Star.
Mark Carney’s government announced a $78.3 billion deficit for 2025-26, a number that surpassed earlier projections made by the independent Parliamentary Budget Officer. At the same time, the government pledged $141.4 billion in new spending — mainly on infrastructure and national defence — over the next five years.
The feds said the expenditures are needed to make the Canadian economy more self-sufficient in light of American tariffs, trade tensions and global economic uncertainty.
But the budget provided little new relief for Canada’s tariff-hit sectors, while the broader economy is showing signs of struggle, such as high unemployment and stagnant growth. Economists say that most of the investments proposed in the budget will largely only be felt in the long-run.
“I think this really is planning for the next year, the next three years, the next ten years. It’s protecting ourselves if the U.S. market is not coming back the way it was,” said BMO chief economist Douglas Porter. “We all have to plan for the possibility that this is not just a short-term blip, and things really have changed.”
Porter’s overall take on the budget was positive.
“Some of this new spending that we’re seeing … is actually setting up the possibility for better growth in the future. So I think, on balance, it’s a reasonable plan and should support the economy through the medium term,” he said.
“Is it transformational? We wouldn’t say it’s transformational.”
David Macdonald, senior economist at the Canadian Centre for Policy Alternatives, agrees.
“There are some interesting new programs to be sure,” he said, citing the Build Canada Homes initiative, a new federal agency aimed at building affordable housing and incentivizing construction. The agency was awarded an initial $13 billion to spend on residential developments.
“But I don’t know that it’s a radical departure from how governments attempted to manage the economy yesterday.”
Higher government spending doesn’t come without risks, and some experts are worried about Canada’s fiscal sustainability. With a higher deficit, the government will have to borrow more money, which could impact the interest Canadians pay on their debt, or raise more revenues through taxes.
“The budget asks Canadians to wait for long-term payoffs while managing short-term sacrifices,” Scotiabank economist Rebekah Young wrote in a note to clients.
“It may be the type of budget Canada needs,” Young said. “But the government still has to convince Canadians it’s the one they want if they hope to catalyze investment.”
With files from Tonda MacCharles
