The Top Line
This afternoon, Finance Minister François-Philippe Champagne tabled the 2026 Federal Budget. As the first annual fiscal plan that Prime Minister Carney’s government developed following a full stakeholder consultation cycle and the ascension of the Liberals to majority government status, the Budget takes major steps to remake Canada’s fiscal and business environment in Prime Minister Carney’s mould – and the mould is all about stimulating medium to long-term economic growth in Canada.
The Budget reflects broad themes that Prime Minister Carney and his Cabinet telegraphed ahead of the Budget, namely the goals of making Canada the best place in the world to invest and capturing Canadian benefit from global “investment super cycles” in energy, critical minerals, and Artificial Intelligence (AI).
However, while those sectors are no doubt areas where Prime Minister Carney’s government sees Canada as able to excel, the lion’s share of new investments/foregone federal revenue in the Budget were focused on generalized, broad-based business competitiveness and tax reform spending, including:
- The previously announced Productivity Mega Deduction (a major corporate tax write-off for many types of capital investment);
- A newly announced Canada Growth Incentive (which exempts from tax up to $15 million in capital gains from investments in certain qualifying Canadian Controlled Private Corporations); and
- A suite of other business supports and incentives, such as expansion of Scientific Research and Experimental Development (SR&ED) tax credits and the Strategic Response Fund.
Those measures are presented by the Government as a continuation of the Productivity Super Deduction announced in Budget 2025 and the Canada Investment Summit that occurred in September. On that note, highlighting of the Productivity Mega Deduction recurs throughout the Budget, including in sections related to housing, clean technology, and agriculture, and is presented by the Government as a sort of organizing principle for investment in the growth and development of every sector of the Canadian economy.
Notably, the Mega Deduction and focus on other tax reforms to support investment in Canada also represent a partial shift, away from the focus in the last Budget on more short-term or “emergency” and industry-targeted responses to U.S. tariffs, to an approach that aims for broader overall growth – regardless of sector and regardless of the trajectory of U.S. policymaking.
In all that context, it is clear that significant portions of Prime Minister Carney’s mandate – and of his personal political capital – will be spent on economic and fiscal transformation designed to drive investment and business growth in Canada. This is Prime Minister Carney’s government raison d’être.
A Deeper Dive
Budget 2026 asserts the Government is on track to reduce the size of the federal public service by 10% and to balance the Government’s operating budget (which excludes many types of spending classified as capital investments) by next year. Furthermore, Prime Minister Carney’s government will solidify the downsizing of the public service by permanently removing a portion of personnel salary savings driven by retirement incentive-driven employee departures from the public service operating budget.
Conversely, most of the new spending in the Budget is allocated to corporate tax forgiveness, tax code changes, investments in industrial supports, and funding for affordable housing.
In that context, a significant portion of new budget spending is targeted at growing the private sector while government operations are not planned to grow.
The Fiscal Basics
Budget 2025 (last year) established two fiscal guardrails for Prime Minister Carney’s government.
- Balancing day-to-day operating spending with Federal revenues by 2028-29 (though notably not ‘capital’ spending, which ensures a long-term deficit); and
- Maintaining a declining deficit-to-GDP ratio over the time horizon of the Budget.
In today’s Budget, those guardrails were maintained (marginally, in the case of the deficit-to-GDP ratio, and a year ahead of schedule for the operating balance); while the Government’s fiscal figures for the fiscal year 2025/26 are vastly improved by higher-than-expected revenues (largely driven by high oil prices). Consistent with Budget 2025, the fiscal figures for this year predict an extended, negative economic impact from U.S. tariffs through 2027, at which point real GDP growth is projected to hit 2% for several years.
Looking ahead year-by-year, annual deficits will continue through the fiscal horizon of the Budget (2025/26 to 2030/31) and will be driven significantly higher than was projected in Spring Economic Update (SEU) 2026 by the new, major corporate tax forgiveness measures and investments in affordable housing that are included in this Budget. However, the Government has succeeded in reducing the debt-to-GDP current figures and projections in each of Budget 2025, SEU 2026, and Budget 2026, which is a trend that has not been seen in Federal Budgets for some time.
Projected deficits for the coming few years start at $39.3 in 2025-26 (notably far lower than the $78.3 billion that was projected in Budget 2025), but then grow again in subsequent years before declining to $52.9 billion in 2029/30 – which is only slightly less than envisioned in Budget 2025. Federal debt-to-GDP ratio will remain around 40% for that entire fiscal horizon of the Budget.
Corporate Tax Policy
The Government used Budget 2025 to announce a new Industrial Strategy, which was primarily built around a Productivity Super Deduction – a set of tax incentives that allowed businesses to write off a larger share of new investments.
The Productivity Mega Deduction in Budget 2026 (originally announced in September) is presented as a one-stop-shop measure to make it easier to invest in Canada, attract such investment, and create more Canadian companies that succeed globally. It is a scaled-up version of the Deduction in last year’s Budget.
The Mega Deduction will allow businesses to write-off the full cost of a broad range of capital investments across every industry, representing more than 65% of business investment in Canada, per the Government’s estimates. As a result of the Mega Deduction, Canada will have the lowest tax rate on new business investment in the G7, including a lowering of the marginal effective tax rate on new business investment from 13% to 6.4%.
The cost of the Mega Deduction is $36 billion over five years, but the Government models that it could increase Canada’s annual GDP by $22 billion and create 80,000 jobs within the next 10 years. That projected calculus is foundational to the logic behind Budget 2026 and will be a key metric to watch in the coming years.
Other elements of the Budget’s business and investment growth strategy include:
- The Canada Growth Incentive, designed to help businesses attract investment and grow in Canada. The incentive has two components. First, it allows investors to exempt from tax $15 million in capital gains earned from successful investments in eligible Canadian companies, and second, it enhances the existing small business rollover to allow increased deferral of taxes on capital gains;
- A $930 million expansion of the SR&ED tax incentive program to include certain commercialisation expenses; and
- A new investment of $1 billion over six years in the Strategic Response Fund to support large-scale research and development and innovation projects.
Major Projects and Federal Investment
Budget 2026 builds on the work of the Major Project Office by proposing to provide $187.4 million to create and operate a major projects management entity, which will begin by supporting the Mackenzie Valley Highway and the Taltson Hydro Expansion projects. The Mackenzie Valley Highway is also fully funded via the Budget.
The exact mandate and role of the new management entity is not highly defined in the Budget, but, in the long term, if the entity begins to take a role in developing other major projects, it will represent a major federal government endeavour in supporting natural resources and infrastructure development and a true transformation of the Federal Government’s role in that space.
Also, of major note for energy, natural resources, technology, and infrastructure businesses, Budget 2026 announces the Government’s intention to:
- Legislate the creation of the Canada Strong Fund as a Crown corporation (the Fund will currently operate as a subsidiary of the Canada Development Investment Corporation);
- Launch a process to combine Export Development Canada and Business Development Canada;
- Consolidate the Indigenous Loan Guarantee Program within the Canada Infrastructure Bank; and,
- Expand the mandate of the Canada Growth Fund.
Combined those measures will transform the stakeholder framework for how federal investment capital is allocated to major business endeavours, especially for export-oriented firms and projects with Indigenous (co)ownership.
Housing and Infrastructure
Aside from the investment super-cycle focus, measures to support affordable housing, create more supportive housing, and reduce homelessness represent the largest portion of new spending in Budget 2026.
Specifically, the Budget allocates $32 billion over 10 years for First Nations housing and infrastructure, $44.7 billion over 11 years for affordable and non-market housing, and $1.2 billion in 2027-28 to extend federal-provincial-territorial funding agreements for mental health and addictions services and care, with major spending earmarked to:
- Supportive housing projects, via a new Integrated Supports Fund to expand supportive housing programming and a new fund to build such housing, both administered by Build Canada Homes;
- A capital injection into Build Canada Homes for construction of non-market housing;
- A new Health Infrastructure Fund oriented towards community mental health and addictions facilities;
- Renewal of the Reaching Home initiative, the Veterans Homelessness Program, and the Canada Housing Benefit for 10 years; and,
- Renewal of the Health Canada’s Emergency Treatment Fund.
Budget 2026 further proposes to provide $1.5 billion over nine years through the Build Communities Strong Fund to support the construction, expansion, retrofit, and rehabilitation of community recreational facilities and ice rinks.
The high profile of housing in the Budget reflects the fact that many Prime Minister Trudeau-era housing programs needed recapitalization and that housing affordability continues to be one of the highest-profile political issues for voters, other than the Canada – U.S. relationship.
Energy, Clean Technology, and Climate
Increasingly, Prime Minister Carney’s government’s climate and clean technology/energy policy is centred on electrification. Building on the National Electricity Strategy announced in Spring 2026, the Budget:
- Extends the Clean Technology and Clean Electricity investment tax credits (ITC) to the end of 2040 and expands eligibility for the Clean Electricity ITC to the highest-voltage intra-provincial electricity transmission lines in each province;
- Allocates over $50 billion to doubling electricity grid capacity by 2050;
- Earmarks $518.5 million to implement the Nuclear Energy Strategy announced in June;
- Announces new investments of over $634 million in electric vehicle (EV) infrastructure, including a projected 55,000 EV charging stations; and,
- Rebrands and recapitalizes the Green Industrial Facilities and Manufacturing Program – now named the Strategic High-efficiency Industrial Facilities Transition – with $400 million.
Combined, this spending spotlights Prime Minister Carney’s philosophy that electrifying the economy is the future, both for business competitiveness and better environmental outcomes. Prime Minister Carney’s government is also betting on electrification to offset the climate impacts of its investments in conventional energy, and it is notably bullish on taking steps to decarbonize the Canadian economy even as it projects a market for Canadian oil and gas abroad.
Budget 2026 also proposes to recapitalize the Critical Minerals Strategy with $424.4 million over four years, representing a continuation of the Government’s well-funded focus on creating a Canadian critical minerals mining and processing sector.
Affordability and Cost-of-Living
While it remains far ahead in public polling overall and on a wide range of policy issues, Budget 2026 clearly demonstrates Prime Minister Carney’s government has its eyes on the issue of affordability, which remains a paramount voter concern across the Western world. Measures taken to address affordability in the Budget are focussed on competitiveness policy improvements, reductions in banking and financial sector fees, anti-fraud protections, and attracting new entrants to the Canadian financial and telecommunications sectors. There are also a one-time top-up of the priorly existing Canada Groceries and Essentials Benefit Supplement and the creation of a Refundable Canada Caregiver Credit.
Artificial Intelligence
Upon taking office, the new Liberal government appointed the first-ever Minister for Artificial Intelligence and made AI policy a major feature of its mandate. Notably, however, Budget 2026 is largely silent on AI and it does not include any major new investments in the sector. The Budget does signal the Government will allow Canadian AI companies to access 500 MW of sovereign AI compute through financial tools like backstops and offtake agreements, but it positions this primarily as a measure to mobilize private capital.
Although the Federal Government very notably took a major share in Cohere last week, the lack of an AI focus in the Budget cannot help but feel like an adjustment to the shifting political winds on AI, notably increasing opposition to data centres.
National Defence
The Budget notes that prior and new investments in national defence put Canada on track to spend 4% of GDP on defence this decade and reach 5% of GDP by 2035. There is also an expansion of support to Operation REASSURANCE – the Canadian Armed Forces NATO deterrence mission.
Opposition Reaction
Official Opposition Leader Pierre Poilievre immediately indicated the Conservative Party will oppose the Budget and labelled it a “credit card budget that is going to drive inflation and drive up prices for groceries, essentials, and housing.”
Bloc Québécois Leader Yves-François Blanchet criticized the Budget for not focusing enough on healthcare – which he said is Quebecers’ number one priority.
Finally, NDP Leader Avi Lewis said the Budget was early Christmas for billionaires, and he argued it did not do enough on cost-of-living issues.
What’s Next
The Budget process begins with the Minister of Finance presenting the fiscal plan in the House of Commons, accompanied by a motion asking Parliament to approve the Government’s general budgetary policy. The Budget is then subject to a maximum of four additional sitting days of debate, which do not need to be consecutive. During this period, opposition parties may introduce one amendment and one subamendment to the Budget motion. There can be up to three votes: (1) a vote on the subamendment, normally on the second day of debate; (2) a vote on the amendment, normally on the third day; and (3) a final vote on the main Budget motion, normally on the fourth day. The final Budget vote is traditionally considered a confidence vote, but as a majority government the Liberals will not have much concern about that.
Once the Budget has been passed, the Government can move forward with the first of the two Budget Implementation Acts (BIA), to enact new measures found in the fiscal plan. Watch for BIA 1 to be introduced later this month or in early December.
What This Means For You
Last year’s Budget, delivered in a minority Parliament, was largely about helping business deal with the short-term impacts of President Trump’s tariffs. Conversely, Budget 2026 is primarily about implementing Prime Minister Carney’s vision for longer term economic growth in Canada. Focus areas include stimulating private sector investment, diversifying trade, and supporting growth-enabling infrastructure – including expanding the electrical grid, building transportation infrastructure and housing, and strengthening domestic supply chains in key sectors of the economy. Given its majority status, the Government can be certain that it will have the opportunity to enact the agenda laid out in this fiscal plan.
In that context, the Government will now move into fiscal years two- and three of its four-year mandate – traditionally a time when a majority government will try to enact the portions of its agenda that require the most political capital, while attempting to retain a narrow focus on its core priorities and achieve successes that position it for re-election. As such, stakeholders should not expect major, non-emergency spending that departs from the themes of this Budget in the coming couple of years. For its part, Prime Minister Carney’s government will be banking that the Mega Deduction and other tax measures are a success and that a rising economy results in the years ahead, casting the Liberals in a good light. Finally, beginning with this Budget, the Federal Government is fully transitioned to a fall budgeting cycle and is already signalling through the Budget document that SEU 2027 will include major spending and policy measures. For stakeholders, this means that consultation on public spending and tax policy will be a continuous, demanding process under Prime Minister Carney’s government. Planning and internal resource allocation for funding asks in future Budgets and SEUs should thus be a high priority.
