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Canada's Carney unveils budget with cuts and defense hikes amid US tariff strain
Prime Minister Mark Carney will present Canada's first federal budget under his leadership on Tuesday, warning of "sacrifices" as the government seeks to overhaul an economy weakened by US tariffs and shifting global trade dynamics. The plan combines deep spending cuts with long-term investments to reduce dependence on American markets and meet a NATO defense spending target of 5% of GDP by 2035.
Deficit projections and economic pressures
Analysts anticipate the federal deficit could surpass C$70 billion ($50bn; £38bn), up from C$51.7bn in the prior fiscal year, as Ottawa balances fiscal restraint with ambitious economic reforms. The budget arrives amid sluggish growth forecasts-1.2% GDP expansion in 2025, according to the Bank of Canada-compounded by rising unemployment linked to trade uncertainty.
Carney, a former central banker for Canada and the UK, has framed the budget as a pivot toward "resilience over reliance," aiming to double non-US exports within a decade. US tariffs, including a 35% levy on select Canadian imports and broader duties on metals, autos, and lumber, have disproportionately hurt key industries despite exemptions under the US-Mexico-Canada trade agreement.
Defense commitments and domestic cuts
The budget will outline funding for billions in defense spending to meet NATO obligations, while federal ministries face pressure to trim up to 15% from program budgets over three years. Finance Minister François-Philippe Champagne emphasized a "made-at-home" economic strategy during a pre-budget visit to a Quebec footwear manufacturer, calling it "emblematic of who we are as a nation."
"We're moving from reliance to resilience, from uncertainty to prosperity. We're going to do the kind of things that make this country stronger."
François-Philippe Champagne, Finance Minister
Political hurdles and election risks
Carney's Liberal Party, holding a minority government with three fewer seats than a majority, must secure support from at least one opposition party to pass the budget-a confidence vote that could trigger a snap election if defeated. While analysts deem an immediate election unlikely, the left-wing New Democratic Party (NDP), currently in a leadership transition, may abstain to avoid political instability.
Elizabeth McCallion, a political science professor at the University of Toronto, noted potential "pushback against austerity" but suggested opposition parties are reluctant to force an election so soon after the spring vote. "I don't think any of the other parties want to run an election right now," she said.
Trade diversification challenges
Experts highlight the need for government support to help businesses transition away from US-dependent supply chains. Joy Nott, a trade specialist at KPMG Canada, cited barriers like market research costs, regulatory hurdles, and trade mission funding as critical areas for intervention. "Canadian companies need government support during this transition," she told the BBC, pointing to "historic hurdles" that have limited diversification efforts.
Key measures to watch
- Defense spending: Pathway to 5% of GDP by 2035, aligning with NATO requirements.
- Trade infrastructure: Investments to bolster non-US export capacity.
- Housing and tariff relief: Targeted aid for industries hit by US duties.
- Program cuts: Up to 15% reductions in some federal spending areas.
Carney's G7 ambition
In a pre-budget speech, Carney declared Canada must "swing for the fences" to reclaim its position as the strongest G7 economy. The budget's success hinges on balancing fiscal discipline with transformative investments-while navigating political fragmentation and external trade pressures.
