Canada’s Mark Carney promises “bold” first federal budget

Prime Minister Mark Carney is set to present his government’s first federal budget on Tuesday and warned Canadians to expect “casualties” as he seeks to transform an economy hit by U.S. President Donald Trump’s tariffs.

Carney said the spending plan would include both significant cuts and “generational investments” to strengthen the economy and reduce the country’s dependence on trade with the United States.

The plan is also expected to outline how Canada will pay billions of dollars in defense spending to meet NATO’s new commitment to spend 5% of GDP on defense by 2035.

Analysts suggested the federal deficit could exceed C$70 billion ($50 billion; £38 billion), up from $51.7 billion last year.

The fiscal plan is seen as a major test for Carney, a former central banker of Canada and the United Kingdom who has pledged to make Canada’s economy the strongest in the G7 group of wealthy nations.

“We’ve been taking big, bold risks in this country. It’s time to swing for the fences again,” he said in a pre-Budget speech last month.

Canada, which trades primarily with the US, is particularly exposed to tariff shocks.

Carney said he aims for the country to double its exports outside the US 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 from one market to another.”

This 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 historical obstacles that we’ve seen that have prevented them from doing it,” Ms Knott said.

Finance Minister Francois-Philippe Champagne emphasized the “made at home” message Monday as he bought new shoes — a political tradition for federal finance ministers ahead of the budget — at a Quebec plant that supplies shoes around the world, 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 at the company’s manufacturing facility.

“We’re going from reliance to resilience, from insecurity to prosperity, we’re going to do things that make this country stronger,” Champagne said.

While he said the budget would be focused on “investment,” Carney also promised to balance the federal operating budget — day-to-day spending on government programs — over the next three years.

Over the summer, federal ministries were asked to find ways to cut up to 15 percent of program spending in coming years as the government looks for savings to fund spending on things like commercial infrastructure, housing and industries hit by the tariffs.

It remains unclear where Carney’s Liberal Party will find the support it needs to pass the spending package. The Liberals, three seats short of a majority in the House of Commons, need at least one more party to help pass the fiscal plan.

Canada faces a potential snap election if the budget vote, which is a vote of confidence, fails. Although that’s an unlikely scenario so soon after Canadians went to the polls in the spring.

“I don’t think any of the other parties want to hold an election right now,” said Elizabeth McCallion, a political science professor at the University of Toronto.

The most likely support will come from the left-wing NDP, which is currently in the midst of a leadership race after a disastrous performance in April’s election.

Prof. McCallion said it was possible some NDP MPs would abstain to allow the budget to pass.

She said Carney also faced the risk of a “pushback against the austerity measures” expected in the budget.

Trump imposed a 35% tariff on Canadian imports, although most goods are exempt from the levies because they fall under the free trade agreement between the US, Mexico and Canada. Separate US global tariffs on metals, autos and lumber, however, are hitting those sectors of the country particularly hard.

There are signs that trade uncertainty is weighing on Canada’s economy and unemployment is rising.

The Bank of Canada forecasts that the country’s GDP will grow by 1.2% in 2025, 1.1% in 2026 and 1.6% in 2027.