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Canada Unveils $78bn Deficit Budget Amid US Trade Pressures
Prime Minister Mark Carney's government presented its first federal budget on Tuesday, a sweeping C$78 billion ($55.3bn; £42.47bn) deficit plan designed to shield Canada's economy from US tariffs while attracting C$1 trillion in private investment over five years. Finance Minister François-Philippe Champagne framed the proposal as an urgent response to "profound change," warning that restrained spending would jeopardize "vital social programmes" and future growth.
Trade and Tariff Response
The budget allocates C$280 billion over five years to bolster productivity and competitiveness, with a focus on diversifying exports away from the US. Measures include modernizing ports and trade infrastructure to double non-US exports within a decade, alongside direct aid for industries hit by President Donald Trump's 35% tariffs on Canadian steel, aluminum, and automobiles-levies that have already triggered job losses and dampened investment.
Rebekah Young, Scotiabank's head of inclusion and resilience economics, noted the plan's ambition to streamline regulations and cut approval timelines to lure private capital. However, she cautioned that immediate cost-of-living pressures may overshadow long-term gains: "They're opening this budget and not seeing new supports." Young added that the goal of unlocking C$1 trillion hinges on execution: "A lot has to happen to get to that trillion."
Defence and AI Investments
The budget earmarks C$82 billion over five years for defence-the largest such commitment in decades-aligning with NATO's 2% GDP spending target. Another C$1 billion will fund AI integration across government and industry, signaling a push to position Canada as a tech leader.
Public Sector Cuts and Immigration Adjustments
To offset spending, the government will reduce the federal workforce by 10% (40,000 jobs by 2029) and roll back international aid to pre-pandemic levels. Immigration targets will also dip slightly over three years, including a sharp reduction in student visas, to "stabilize" admissions.
Political Hurdles Ahead
The Liberal minority government must secure opposition support to pass the budget, risking a snap election if it fails. Conservative MPs criticized the deficit hike and lack of affordability measures, while Bloc Québécois leader Yves-Francois Blanchet dismissed the plan outright. The left-leaning NDP signaled cautious review but opposed public sector cuts.
A late-night defection-Conservative MP Chris d'Entremont crossing the floor to join Carney's Liberals-narrowed the government's razor-thin margin, citing local priorities in his riding.
Economic Context
Despite the deficit, Canada retains the G7's lowest deficit-to-GDP ratio after Japan. The budget's success hinges on balancing immediate fiscal pain with long-term growth bets amid trade volatility.
