Key facts
- Economists say spending commitments could produce bigger deficits in coming years despite windfall oil revenue.
- Champagne set goals last year to balance operating spending by fiscal 2028-29 and keep a declining deficit-to-GDP ratio.
- New spending and tax measures since April's economic update total nearly C$140 billion over the next decade, per Desjardins' Randall Bartlett.
- Pedro Antunes of Signal 49 Research said he was unsure Canada could meet its defense spending goals.
- Scotiabank said in its budget outlook that a detailed defense fiscal plan would lend credibility to Canada's ambitions.
- Canada spends 2% of GDP on defense, against Carney's pledges of 4% by 2030 and 5% by 2035.
Canada's government was due to present its second budget in parliament around 4 p.m. ET on Thursday, November 5, 2026, with economists urging Prime Minister Mark Carney to restrain spending despite windfall oil revenue. Economists say spending commitments could lead to bigger deficits in the coming years.
Carney, who has run two central banks, needs to show how he will attract investment and ease affordability concerns while demonstrating fiscal credibility to preserve the country's AAA credit ratings and keep borrowing costs low, economists say. Finance Minister Francois-Philippe Champagne told reporters in Montreal on Wednesday that affordability was top of mind and that the government needs to invest in its future and growth, supporting small and medium-sized businesses. He said on Monday the budget would include tax measures for small and medium-sized businesses, without giving specifics.
Almost 20 months of tariffs on some Canadian goods from the United States, Canada's largest trade partner by far, have upended supply chains and shrunk exports to the US. The Iran war is pushing up gasoline and diesel prices, and policymakers say they could spill into food costs soon, while higher interest rates are increasing mortgage costs. Canada's official GDP figures nonetheless show the economy has held up relatively well, helped by data center construction, higher oil revenue in the world's No. 4 producer and government supports such as a suspension of federal fuel taxes.
Last year Carney pledged to raise defense spending to 4% of GDP by 2030, including core spending of 2.5% and ancillary spending of 1.5%, and to 5% by 2035, to meet NATO commitments. Canada currently spends 2% of GDP on defense. Pedro Antunes, chief economist at Signal 49 Research, said he was unsure Canada could meet those goals. "If we are going to get there, then we need to see (in the budget) where and how that money is going to be spent," he said. Scotiabank said in its federal budget outlook that a detailed defense fiscal plan would lend credibility to Canada's ambitions.
In last year's budget announcement, Carney said Canada would attract C$500 billion to C$1 trillion ($358 billion to $716 billion) in investments over the next five years through tax incentives and major infrastructure projects. Champagne set two fiscal goals last year: to balance day-to-day operating spending against revenue by fiscal year 2028-29 and to maintain a declining deficit-to-GDP ratio. Carney said in September that operating spending would balance against revenue a year earlier than targeted, but economists said a falling deficit-to-GDP ratio would be hard to sustain. Antunes said Champagne should stick to last year's fiscal goals. "I think credibility around this has been worn thin," he said.