With a Liberal majority ensuring its passage, the November 5 budget will test Prime Minister Mark Carney’s commitments to fiscal discipline, private investment and economic growth amid rising inflation and trade uncertainty.
Prime Minister Mark Carney’s Liberal government will introduce its second federal budget on Thursday, November 5, amid concerns over widening deficits, rising inflation, weak employment figures and ongoing trade tensions with the United States.
Finance Minister François-Philippe Champagne will table the budget in the House of Commons, outlining measures to stimulate investment, improve productivity and diversify Canada’s trade relationships.
Unlike last year, the Liberals now hold a parliamentary majority, having secured 174 seats following three byelection victories on April 13 and the earlier defection of five opposition MPs. The budget is therefore expected to pass without opposition support.
Deficit Projections Raise Fiscal Concerns
The Parliamentary Budget Officer (PBO) forecasts a federal deficit of $63.3 billion in 2026-27, rising to $70.2 billion in 2027-28. Ottawa’s spring update had projected deficits of $65.4 billion and $63.5 billion, respectively.
A major point of contention is Carney’s promise to balance operating expenditures, covering everyday government costs through revenues while reserving borrowing for capital investments.
Carney maintains that Ottawa can achieve this target by 2027-28, a year ahead of schedule. However, the PBO expects the government to reach operating balance in 2028-29, while an earlier assessment suggested 2029-30.
Parliamentary Budget Officer Annette Ryan has also raised concerns over rising debt-servicing costs and differences between the government’s projected $53-billion deficit toward the end of the decade and the PBO’s estimate exceeding $63 billion.
The watchdog warns that new spending commitments have absorbed the fiscal benefits of higher oil prices, increasing projected annual deficits by approximately $3 billion compared with June estimates.
Investment and Productivity Take Centre Stage
Champagne has indicated that the budget will focus on attracting private investment, improving productivity and reducing Canada’s economic dependence on the United States.
A major expected initiative is the Productivity Mega Deduction, a $36-billion business tax incentive over five years allowing companies to immediately deduct 100 per cent of eligible investment costs. The measure now covers more than 65 per cent of asset categories, compared with 15 per cent previously.
Scotiabank forecasts additional measures including approximately $10 billion in affordability spending, $2.9 billion in fuel excise relief, defence commitments and the proposed $25-billion Canada Strong Fund. Possible incentives for start-ups and a growth-oriented immigration strategy also remain under consideration.
Small businesses are seeking tax relief, with the Canadian Federation of Independent Business urging Ottawa to reduce the small business tax rate from nine to six per cent.
Meanwhile, Conservative Leader Pierre Poilievre and the Canadian Taxpayers Federation continue criticizing federal deficits and calling for reduced spending, borrowing and taxation.
Progress on 2025 Budget Commitments
Carney’s first budget projected a $78.3-billion deficit for 2025-26, declining to $56.6 billion by 2029-30.
Since then, the budget legislation has received Royal Assent, Canada has reached NATO’s defence spending benchmark of approximately two per cent of GDP, and Build Canada Homes has been established as a Crown corporation.
However, implementation challenges remain. Build Canada Homes initially proposed up to 4,000 homes across six federal sites, with construction beginning on projects including a 74-unit Toronto development containing 17 affordable homes.
A progressive think tank estimated the agency received slightly more than $6 billion in new funding, below the Liberals’ $11.8-billion campaign commitment.
The government has also faced criticism over public service reductions. Despite campaigning on capping employment, the 2025 budget proposed eliminating 30,000 positions, with approximately 10,000 jobs already cut.
The Canadian Taxpayers Federation estimates spending will exceed this year’s budget by $6.5 billion, while Build Canada reports that only 31 per cent of broader interprovincial trade reform commitments have been implemented.
Inflation, Interest Rates and Employment Add Pressure
Canada’s economic outlook has weakened since the previous budget, with annual inflation reaching 3.1 per cent in September 2026, compared with 2.2 per cent in October 2025.
Higher energy prices linked to the Middle East conflict have contributed to inflationary pressures, with gasoline inflation reaching 33.2 per cent in May.
The Bank of Canada raised its benchmark interest rate by 25 basis points to 2.50 per cent on October 28, its first increase since July 2023. Governor Tiff Macklem has left open the possibility of further increases, with the next decision scheduled for December 9.
Scotiabank warns that additional government spending could intensify inflation, potentially conflicting with the central bank’s efforts to control prices.
Meanwhile, Canada lost approximately 68,000 jobs in September, pushing unemployment to 6.5 per cent. The October employment report will be released November 6, one day after the budget.
The Bank of Canada forecasts economic growth of one per cent in 2026 and two per cent in both 2027 and 2028.
Business labour productivity rose one per cent in the second quarter after declining two per cent on an annualized basis in the first, although unit labour costs have increased for five consecutive quarters.
Higher oil revenues could provide some relief, with Scotiabank estimating nominal GDP may exceed the government’s April projections by approximately $68 billion.
Trade Uncertainty Remains
The budget comes as Canada continues facing U.S. tariffs and uncertainty surrounding the Canada-United States-Mexico Agreement (CUSMA), whose review deadline passed without a new agreement.
It also follows Democratic victories in the U.S. midterm elections, which could influence future trade negotiations with Washington.
While Carney’s majority government is expected to secure the budget’s passage, its success will depend on whether Ottawa can contain deficits, improve affordability and deliver stronger economic growth.
Upcoming employment figures on November 6, inflation data on November 16 and the Bank of Canada’s December 9 interest rate decision will provide further indications of Canada’s economic direction.
