Canadian Prime Minister Mark Carney's government on Tuesday unveiled a "historic" budget aimed at overhauling an economy that is reeling from US tariffs and expected to slow in 2025 and 2026.
Economists surveyed by the government have lowered their projections. They are now forecasting growth of 1.1 percent this year (down from 1.9 percent a year ago) and 1.2 percent in 2026 (down from 2.1 percent a year earlier).
"This is not a simple transition. It is a rupture, a change of historic significance taking place over a short period. This new reality is transforming our economic foundations," the government said as it released the budget.
Under the proposed 2025-26 spending plan, Canada's deficit would nearly double from last year, reaching Can$78.3 billion (US$55.5 billion) -- as part of Carney's efforts to reform Canada's economy, officials said.
"We are facing headwinds," Finance Minister Francois-Philippe Champagne said at a press conference as he defended the move to widen the deficit. "There is a big difference between spending and investment. What you see today is an investment budget."
Infrastructure projects
Under the plan, Ottawa plans to save Can$60 billion over five years in its public service, and reinvest the money freed up in infrastructure, defense and housing to help Canada navigate the global economic upheaval caused by the US tariffs.
Carney is focusing his government's first budget on investing in major infrastructure projects and boosting military spending to inject new life into a national economy shaken by the protectionist shift of the neighboring United States under President Donald Trump.
In Canada, Trump's tariffs have hit hard, driving up unemployment and squeezing businesses in crucial targeted sectors like autos, aluminum, and steel.
Carney's Liberal government says the budget will address the stark new geopolitical realities facing Canada.
Budget highlights include major increases in defense spending to bring Canada in line with NATO targets.
Funds will also be allocated to a series of national projects that Carney has said are key to Canada's economic sovereignty, given the "rupture" in economic relations with the United States.
These range from port expansion to energy production and the infrastructure needed to boost extraction of critical minerals from remote areas.
'Not a game'
Carney, who replaced Justin Trudeau as prime minister in January before being elected to a full term in April, has consistently warned Canadians that the Trump-era disruptions in US-Canada relations are not a passing phase.
He said this weekend that the budget would help "reduce our reliance on the United States," but noted that such a transformational shift "can't happen overnight."
Carney's April election win left his Liberals three seats short of a majority in parliament. That means the government needs opposition support — or abstentions — to pass its budget.
Because the budget is a confidence vote, its defeat would trigger fresh elections.
The Conservatives, the largest opposition party in parliament, may be the least likely to help.
Party leader Pierre Poilievre has made a range of demands in exchange for his support, including deficit reduction.
But University of Ottawa public policy expert Genevieve Tellier told AFP she expects the deficit to be "very large."
The left-wing New Democrats, who no longer have official party status in parliament after a dismal election performance in April, may prove reluctant to trigger another vote and could abstain on Carney's budget.
Tellier said she saw "little chance" of the government falling.
Asked over the weekend if he was confident his budget would pass, Carney said: "I am 100 percent confident that this budget is the right budget for this country, at this moment."
"This is not a game," he added, voicing readiness to defend his proposals in an election if necessary.
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