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Canada unveils $280bn economic overhaul amid US trade tensions and global shifts
Prime Minister Mark Carney's first federal budget, released Tuesday in Ottawa, outlines a sweeping C$280bn spending plan designed to propel Canada to the top of the G7 while navigating what Finance Minister François-Philippe Champagne called an era of "significant change" akin to the post-Cold War period. The blueprint-part economic strategy, part political gambit-projects a near-record C$78.3bn deficit and warns of "headwinds" as Canada recalibrates its relationship with the United States, its dominant but increasingly unpredictable trade partner.
Deficits and growth: A high-stakes bet on competitiveness
The budget frames deficit spending as an investment to attract C$1tn in private capital over five years, targeting infrastructure, defense, and productivity. Key allocations include:
- Infrastructure: Highways, ports, electrical grids, and digital corridors to modernize trade routes.
- Defense: C$81.8bn over five years-the largest military budget in decades-to meet NATO's 2% GDP target by 2025 and 5% by 2035, with funds earmarked for Arctic security and space launch capabilities.
- Housing and productivity: Initiatives to address chronic shortages and lagging output, though specifics remain unclear.
Champagne defended the approach as "a strong response" to global instability, while Carney acknowledged the need for "sacrifices," including C$60bn in cuts over five years-primarily through 40,000 public-sector job reductions (10% of the workforce) via attrition, layoffs, and AI adoption. Federal ministries face up to 15% trims, saving an estimated C$44bn.
Breaking with the US: Trade diversification and tax incentives
With 70% of Canada's trade tied to the US-and Trump-era tariffs now imposing a 35% levy on non-free-trade goods-the budget prioritizes doubling non-US exports within a decade. Measures include:
- Export support: Millions in subsidies for businesses entering new markets, covering legal fees and market research.
- Cultural ties: Exploring Canada's participation in the Eurovision Song Contest to strengthen European bonds.
- Tax competition: Slashing the marginal effective corporate tax rate to 13.2% (from 15.6%), undercutting the US to lure investment. "This is a great message for investors," Champagne said.
To counter US tariffs-hitting steel, aluminum, lumber, and autos-Ottawa allocated C$5bn to aid affected sectors, including C$1bn to help steel producers like Algoma Steel Inc. (which faced layoffs) pivot to new markets. A C$10bn loan facility will support "otherwise successful" firms, funded partly by C$6.5bn in revenues from Canada's retaliatory tariffs.
Climate and energy: A "clean superpower" pivot
The budget rebrands Canada as a "clean energy superpower," replacing predecessor Justin Trudeau's oil-and-gas emissions cap with a Climate Competitiveness Strategy. Key moves:
- Low-carbon investments: Backing for nuclear reactors, liquified natural gas (LNG) with carbon capture, and methane regulations.
- Carbon tax stability: Long-term pricing agreements with provinces to give businesses certainty, while retaining the industrial carbon tax-called "the most effective emissions-reduction policy" in the document.
- Scrapped initiatives: Trudeau's consumer carbon tax, 2035 electric-vehicle mandate, and the "2 Billion Trees" program (only 160 million planted by 2024).
Critics in oil-rich Alberta had lobbied to roll back environmental rules, arguing they stifled development. The budget instead funnels funds into carbon capture and storage, framing climate action as an economic driver.
Immigration and labor: Sharp reversals from Trudeau era
Carney's government slashes temporary resident targets by 43%-from 673,650 to 385,000 in 2026, then 370,000 annually through 2028-citing housing and social-service strains. A one-time measure will fast-track permanent residency for up to 33,000 work-permit holders. The budget also:
- Cancels a capital gains tax hike, calling it "costing more to administer than it collected."
- Ends the luxury tax on vehicles over C$100,000 and boats above C$250,000, deeming it ineffective.
- Allocates C$1.3bn to attract international researchers from US universities facing funding cuts.
Political risks and unanswered questions
The budget's success hinges on its ability to balance bold spending with austerity-a tightrope Carney, a former central banker, must walk as he distances himself from Trudeau's legacy. Analysts note:
- Deficit concerns: The C$78.3bn shortfall (second-largest on record) assumes private investment will materialize.
- Trade gamble: Diversifying from the US depends on European and Asian markets absorbing Canadian goods-a challenge amid global protectionism.
- Public-sector cuts: Layoffs and AI adoption could disrupt services, testing labor relations.
"This is a budget for a Canada that refuses to be left behind," Carney told Parliament. "But transformation requires tough choices."
