James Moore is a former federal cabinet minister under prime minister Stephen Harper, and a columnist for CTVNews.ca.
On Tuesday, the government of Prime Minister Mark Carney will present the federal budget.
It has been over 30 years since a budget of the same scale of earned hype, political implications and economic consequence has been presented to Canadians. After a protracted delay, the 2025 budget will be the first by Canada’s 24th prime minister and the anticipation in all regions of the country and all sectors of the economy is extraordinarily high.
First, some economic context heading into the budget. Canada’s economy contracted by 1.6% in the second quarter, driven by a crash in exports and steep decline in investment in machinery and equipment. The export picture is of no surprise given the ongoing trade and tariff war against Canada by U.S. President Donald Trump.
The impact of the tariffs and the broader trade instability is deep and felt in every region of the country, and that is no surprise given that exports to the United States constitute about 18% of Canada’s GDP.
The impact of the Trump tariffs run much deeper than just those working directly in export focused sectors. The whole of the Canadian economy has suffered from the reality of the current tariffs and the uncertainty around ongoing threats of further action.
The latest analysis of small and medium sized business (SMEs) by the Canadian Federation of Independent Business (CFIB) showed that more than 70% of SMEs have been impacted by the tariff policies and no sector has been spared from a negative hit.
Industries most affected, not surprisingly, are wholesale trade, transportation and manufacturing, but nearly 50% of firms in the least affected sectors (insurance and finance) also report feeling a significant negative hit because of the Trump tariffs and trade uncertainty.
All Canadians are paying a price. Canada’s job market is cooling quickly. Our unemployment rate of 7.1% (up from 6.6% in February) has been felt most acutely by young Canadians and immigrants to Canada, according to analysts. Staggeringly, the youth unemployment rate is six times more than that of the main cohort of Canadian workers, and the youth unemployment rate for immigrants now stands at 19.2%, which is at the same level as it was during the 2008-09 global financial crisis – the worst economic crisis since the Second World War.
Anxiety about job security is growing across the country, and for a Liberal government that has historically depended on the support of new Canadians and younger voters, those voting blocks shifting to the Conservatives could continue to accelerate if their hopes of meaningful action by Prime Minister Carney fall apart on Tuesday.
On the affordability front, in the real world of everyday Canadians, things are tight financially and incredibly stressful. Thirty-one per cent of Canadians — according to an Angus Reid survey this summer — could not handle a one-time unexpected expense greater than $250 in a month. Only 39% could financially manage an emergency expense of $1,000 or more.
The financial fragility and exposure of Canadian families is anxiety inducing and layering incredible stress and tension onto the already stressful lives of Canadians. People are anxious about their employment, worried about Canada’s macro-economic stability going forward, and more Canadians every month are living on tighter budgets with little financial margin for an emergency.
And there is even less margin for meaningful savings for long-term security and retirement.
In his recent speech at the University of Ottawa, the prime minister tried preparing Canadians for what is coming on Tuesday. He said it will be “a budget of austerity and investment at the same time, and that’s possible if you have discipline.” Well, we’ll have to see. But in the meantime, I have a series of questions that I will be looking for answers to in the budget on Tuesday.
1) Navigating Trump’s trade war
No country in the world is more exposed to the consequences of Trump’s economic nationalism and trade war than Canada. Taken together, are the measures in the budget going to make Canada notably less reliant on access to the American market and pave the way to capitalizing on diversified global markets?
2) Debit reality check
What is the deficit this year, next year and the year after? And what will our debt-to-GDP forecasts be in the coming years? The budget shortfall in the current fiscal year could well exceed $68 billion, according to the Parliamentary Budget Officer – which is almost double what the government’s Fall Economic Statement promised. And there is chatter that the deficit could reach $100 billion. Contrary to the assertions of some, I think Canadians do care and will grow increasingly more bothered by our rising levels of government spending if the budget arrives without a credible plan to get us back towards balance.
3) Balancing security and growth
Further on the spending side, beyond the challenges of managing the deficits and accumulated debt, I will be looking to see whether all the spending expansion will pay dividends in terms of meaningful productivity and economic growth. Assuming the new defence and security spending results in the procurement of military hardware that aligns with our needs and interests, there has always been an aspiration to ensure these expenditures bring economic benefits at home. Can this massive new defence spending growth get us the military capacity we need and also drive defence procurement dividends that create quality Canadian jobs?
4) Transparency gap on projects
On infrastructure, the criteria used to choose and champion “major projects” remains incredibly vague and seems more political than practical. The process lacks the kind of transparency and certainty that would trigger new investments and attract proponents. Will Budget 2025 provide clarity on the process used to select the projects so that those looking to invest might have greater reassurance of the aspiration to “build baby build?”
5) Fiscal discipline
The Liberal platform on which Prime Minister Carney was elected is 65 pages long and has significant new spending commitments. There are more than 100 new proposals in the platform, and significant new spending beyond the platform has already been announced since the campaign. For example, the “Strategic Response Fund” for the auto sector was pegged at $2 billion in the Liberal platform and it is already expected to grow to $5 billion less than six months into the Liberal mandate. How will the government maintain any sort of fiscal discipline when program mandate creep has already happened on countless fronts since the government was elected in the spring?
6) Size of government
Reports this week have suggested that part of the plan to gain some traction on fiscal discipline will involve an effort to shrink the size of the federal civil service that will involve significant layoffs in the federal public service, and that the plan is to go beyond using the attrition plan that Prime Minister Carney promised in his Ottawa-area riding in the campaign and that was announced earlier this year. How will he manage this operationally and politically while hoping for NDP support for his budget, all while not risking the re-election of his Ottawa-area MPs?
7) Voting strategies
Who, exactly, is going to vote for this budget? The Liberals occupy 169 seats in Parliament, the Conservatives have 144, the Bloc Quebecois have 22, the NDP have seven and the Greens have one. How do the Liberals get to 174 votes in a 343-seat legislature? Will all the opposition MPs show up? Can anyone credibly abstain when remote voting is permitted for MPs? Is the NDP organized in any coherent way to reliably deliver seven votes to the government if interim leader Don Davies can pull some high-profile progressive win for New Democrats to boast about? Would any cut to the federal public service be impossible for the NDP to reconcile – in particular MP Heather McPherson, who is a front-runner for the leadership? Has the Liberal government done any spade work necessary to find a way to pass its budget? Might the Liberals actually prefer an election with a hobbled NDP being led by a unilingual interim leader, all while having the lightning rod of Donald Trump still antagonizing Canadians in the headlines, which is all to their electoral advantage?
So many questions. Tuesday’s budget and the protracted policy and political fallout will be fascinating for Canada’s future.
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