The narrative leading up to the 2025 federal budget promised a World Series moment for the Canadian economy: a generational plan to secure national prosperity and competitiveness. The anticipation was as high as a deciding game seven.
But what the Carney government delivered fell short. This budget, like the Toronto Blue Jays’ dramatic loss, failed to make the bold, structural plays necessary to drive economic growth and resilience.
A welcome tone shift
The new Liberal government deserves credit for a necessary shift in focus and tone on economic issues. It talks the right game, pivoting the narrative to investment, productivity, national sovereignty, and new trade realities in an uncertain world. This rhetoric is an improvement over the Trudeau government’s approach and includes an overdue acknowledgement that core federal responsibilities—like national defence—require significant investment after decades of neglect.
The budget is built around the idea that government spending will “catalyse” growth—a mantra repeated throughout the document. This approach is the equivalent of relying on a single, high-leverage player to win every game. But the budget’s own projections (based on the average of private sector forecasters) show real GDP growth of just 1.6 percent, on average, over the 2025-2029 forecast period. Even under the government’s best-case scenario, this average increases slightly to 1.8 percent, still lower than the 2 percent in last year’s Fall Economic Statement.
The truth is that strong economies don’t rely on government to be their star batter. They rely on governments setting the right conditions for the entire lineup to succeed. That means enabling individuals and private enterprise to operate within a pro-growth investment climate marked by competitive taxes (personal and corporate), minimal red tape, high levels of market competition in key sectors, and fiscal prudence.
While the Carney government shifts policy priorities, the budget employs a playbook that shares fiscal similarities with the previous Trudeau government. The inevitable cost of this approach will be large structural deficits. The projected deficit for 2025-26 is $78.3 billion, nearly double the level projected in the 2024 Fall Economic Statement. Deficits persist across the entire forecast period, ending at $56.6 billion in 2029-30. Structural deficits are now an entrenched feature of the government’s plan.
Is relying on government spending to 'catalyse' economic growth a sustainable strategy for Canada?
Does the budget's focus on targeted tax incentives adequately address Canada's economic challenges?
Should Canada be concerned about its rising national debt and debt charges?
Federal net debt, now $1.5 trillion, remains elevated, starting at 41.2 percent of GDP in 2024-25 and peaking at 43.3 percent in 2028-29, before settling at 43.1 percent in 2029-30. The failure to put the debt ratio on a clear, declining path during a period of economic growth (albeit weak growth) should raise concern about our capacity to weather a future recession. Meanwhile, debt charges are expected to rise from $55.6 billion to $76.1 billion over the next five years, climbing from 1.8 percent of GDP in 2025-26 to 2.1 percent by 2029-30. Rising debt charges will consume an ever-larger portion of government revenue—approximately 13 cents of every revenue dollar by 2029-30, up from 10 cents last year. The spending is partly masked by a dubious new capital investment framework that classifies items like film and video tax incentives as capital investment. This approach reveals misplaced priorities. The government touts a substantial $115 billion in planned “infrastructure investment” over five years. Yet of that amount, only $5 billion (4 percent) is dedicated to trade and transport infrastructure—the critical arteries needed to diversify markets and build supply chain resilience. Small ball base hits To the Carney government’s credit, there are a few well-placed hits, though they are too narrowly focused to spark Canada’s lacklustre economic growth. The budget includes some targeted tax incentives, with the key elements already announced in the 2024 Fall Economic Statement: extension of the Accelerated Investment Incentive (AII) and enhancements to the Scientific Research and Experimental Development (SR&ED) program. These narrowly defined measures invite complexity where broad-based, permanent tax competitiveness is needed. The “productivity super-deduction” includes immediate expensing for certain assets, allowing for a 100 percent first-year write-off for specific property, targeting manufacturing machinery, clean energy equipment, and assets like data network infrastructure and patents. It also introduces a 100 percent deduction in the first year for new manufacturing or processing buildings, with a planned phase-out beginning in 2030, and reinstates accelerated capital cost allowances for low-carbon LNG facilities meeting new, high emissions performance standards. The government estimates these targeted, temporary measures will collectively reduce Canada’s Marginal Effective Tax Rate (METR) by more than two percentage points, maintaining the country’s position as having the lowest METR in the G7 for new business investment. The SR&ED program enhancement increases the enhanced limit to $6 million (up from $3 million). Crucially, the plan extends eligibility to eligible Canadian public corporations and raises the phase-out thresholds based on taxable capital (up to $75 million), allowing larger firms to access the more generous tax credit. While the stated goal to attract private capital investment and boost productivity is the right one, it’s unlikely these measures will be enough to differentiate Canada as a place to start and grow a business. They amount to small ball. Canada faces an economic crisis marked by stagnating real GDP per capita and chronically weak business investment. Layering incremental tax complexity, while leaving the general corporate and personal tax system unchanged, is a poor substitute for the fundamental overhaul needed to compete with our U.S. neighbours. Put simply, Canada needed home runs—bolder, structural tax changes. Support for key trade-impacted industries is understandable given pressure from U.S. tariffs and global uncertainty. While the budget’s proposals to increase competition in telecoms and banking aim to reduce costs and foster innovation, they largely rely on incremental regulatory oversight and delayed legislative steps for key consumer pain points, rather than immediate structural changes to concentrated markets. The ultimate impact of these steps on bringing down prices in highly concentrated sectors remains to be seen. The plan also slows down the headcount in the federal public sector by an estimated 40,000 workers by 2029 through measures like attrition. While necessary, as the federal public service grew by over 110,000 (from about 257,000 to nearly 368,000) between 2015 and 2024, this adjustment—approximately 10 percent of the peak workforce—represents a slow scaling back from an unsustainable hiring spree, not a ruthless gutting or a paradigm shift in civil service efficiency. Finally, a cautious immigration reality check is included. Setting lower permanent and temporary resident targets acknowledges that managing recent rapid population growth is necessary. The new numbers stabilize permanent resident admissions at 380,000 per year, keeping the permanent stream of immigration well above pre-Trudeau government levels of approximately 260,000. Temporary admissions fall from 673,650 in 2025 to 370,000 in 2027 and 2028. These adjustments recognize that the high volume of total newcomers over the past decade has placed sustained pressure on housing, labour markets, public services, and dulled the incentives for productivity-improving capital investment. Posture over policy The budget acknowledges the new reality of a world where trade is being reshaped and Canada’s economy is facing serious structural challenges. But that pivot feels more like political posture than profound policy. Canada needed a plan to slash regulatory red tape, overhaul the tax system on capital and talent, and aggressively dismantle barriers to competition. Instead, the government remains at the centre of the action, confident that government-directed investment will “catalyse” the next era of prosperity. This isn’t a World Series rebuild. It’s a mid-season shuffle that keeps the core problems in the dugout.
Charles Lammam is an economic and policy professional with over a decade-and-a-half of combined experience as a think-tank scholar and thought leader, trusted senior advisor to government, executive leader at a financial services member association, and consultant to private and non-profit corporations.
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