By Fatma Younis
Canadian Prime Minister Mark Carney’s government unveiled a sweeping budget Thursday aimed at making Canada less dependent on the United States as President Donald Trump’s trade war reshapes the longtime allies’ economic relationship.
Budget Details and Economic Projections
The budget, titled “Masters of Our Destiny,” proposes 142.1 billion Canadian dollars (US$101.6 billion) in multiyear spending and tax breaks, including incentives to attract investment and billions for energy, infrastructure and culture. The government projects spending of 603 billion Canadian dollars (US$431 billion) and a deficit of 62.3 billion Canadian dollars (US$44.5 billion) for 2026-27, which is 3 billion Canadian dollars (US$2.1 billion) less than forecast in April.
Fiscal Comparison and Growth Forecasts
Canada’s combined federal, provincial and local government deficits amount to 2.5% of its economy, compared with 8.5% in the United States, according to International Monetary Fund figures cited in the budget. The document declares that “the United States is upending global trade.” The budget comes two days after Democrats swept the U.S. midterm elections, weakening Trump’s political position as the countries pursue a possible trade agreement.
Investment Incentives and Export Diversification
The government expects Trump’s trade war to slow economic growth late this year and early next year, forecasting growth of just 1% in 2026 and 1.7% in 2027. A previously announced tax incentive would allow businesses to immediately deduct qualifying investments, reducing Canada’s effective tax rate on new investment to 6.4%, less than half the comparable U.S. rate. The measure is estimated to cost 36 billion Canadian dollars (US$25.7 billion) over five years.
Sovereign Wealth Fund and Defense Spending
Carney, a former governor of the Bank of Canada and the Bank of England, aims to double exports outside the United States by 2035 while forging closer ties with Europe and Asia. The budget advances plans for Canada’s first national sovereign wealth fund, a 25 billion Canadian dollar (US$17.9 billion) initiative to invest in Canadian companies and major projects. It also outlines 7.7 billion Canadian dollars (US$5.5 billion) to strengthen Canada’s defense industry, with a goal of awarding 70% of military contracts to Canadian firms.
NATO Target and Trade Negotiations
Canada says it is on track to meet NATO’s target of spending 5% of GDP on defense and security by 2035, though the budget does not fully account for the cost. Canada walked away from trade negotiations in August over U.S. demands that Carney said threatened Canadian sovereignty and cultural protections.
