Prime Minister Mark Carney is set to present his government’s first federal budget on Tuesday, and has warned Canadians to expect “sacrifices” as he aims to transform an economy battered by US President Donald Trump’s tariffs.
Carney has said the spending plan will see both significant cuts and “generational investments” to strengthen the economy and reduce the country’s reliance on US trade.
The plan is also expected to lay out how Canada will pay for billions of dollars in defence spending to fulfil the new Nato commitment to spend 5% of GDP on defence by 2035.
Analysts have suggested the federal deficit could exceed C$70bn ($50bn; £38bn), up from $51.7bn last year.
The fiscal plan is seen as a major test for Carney, a former central banker for Canada and the UK who has promised to make Canada’s economy the strongest in the G7 group of wealthy nations.
“We used to take big, bold risks in this country. It is time to swing for the fences again,” he said in a pre-budget speech last month.
Canada, which trades primarily with the US, has a particular exposure to tariff shocks.
Carney has said he is setting a goal for the country to double its non-US exports in the next decade.
Joy Nott, a partner at KPMG Canada who focuses on trade and customs, told the BBC that “Canadian companies need government support during the transition of moving from one market to another”.
That includes everything from finding money to travel on trade missions abroad to market research and navigating regulatory approvals when entering new markets.
It takes time and money to overcome “those historic hurdles that we’ve seen, that prevented them from doing it”, Ms Nott said.
Finance Minister Francois-Philippe Champagne underscored the “made-at-home” message on Monday as he bought new shoes – a political pre-budget tradition for federal finance ministers – at a Quebec business that supplies footwear worldwide as well as to Canada’s armed forces and RCMP officers.
The firm was “emblematic of who we are as a nation”, he told reporters as he stood in the company’s manufacturing facility.
“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,” Champagne said.
While he said the budget would be focused on “investments”, Carney has also promised to balance the federal operating budget – day-to-day spending on government programmes – over the next three years.
Over the summer, federal ministries were asked to find ways to cut up to 15% from programme spending in the coming years, as the government seeks savings to fund spending into things like trade infrastructure, housing, and tariff-impacted industries.
It is still unclear where the Carney’s Liberal Party will find the support they need to pass the spending package. The Liberals, who are three seats short of a majority in the House of Commons, need at least one other party to help pass the fiscal plan.
Canada faces a potential snap election if the budget vote, which is a confidence vote, fails. Though that is an unlikely scenario so soon after Canadians went to the ballot box in the spring.
“I don’t think any of the other parties want to run an election right now,” said Elizabeth McCallion, a political science professor at the University of Toronto.
The most likely support would come from the left-wing NDP, who are currently in the midst of a leadership race after a devastating election performance in April.
Prof McCallion said it was possible some NDP members of Parliament would abstain from voting to allow the budget to pass.
She said Carney also faced the risk of “push back against austerity” measures expected in the budget.
Trump has imposed a 35% tariff on Canadian imports, although most goods are exempt from the levies because they fall under a US-Mexico-Canada free trade deal. However, separate global US tariffs on metals, autos, and lumber are hitting those sectors in the country particularly hard.
There are signs the trade uncertainty is weighing on Canada’s economy and unemployment is on the rise.
The Bank of Canada projects the country’s GDP will grow by 1.2% in 2025, 1.1% in 2026 and 1.6% in 2027.