Carney’s 2026 federal budget to show much lower deficit, new figures suggest - National Post

Copy URL Facebook Linked In X (Twitter) Loading account options Sign In Manage Account Close account menu Sign Out By Simon Tuck November 5, 2026 at 4:00 a.m. The Carney government’s federal budget Thursday will include a projected deficit for this fiscal year that is significantly lower than what Ottawa had projected earlier this year, new data suggests.

The latest financial figures from the Department of Finance, up to the end of August, show that Ottawa’s deficit for the first five months of the year was a modest $5.4-billion. That’s less than half the $11.1-billlion that the federal government posted a year earlier during the first five months of the year.

Finance Minister François-Philippe Champagne said in the spring economic update that the government expected to post a deficit this year of $66.9-billion, down from the $78.3-billion that had been projected in Carney’s first budget last fall.

But the new data from the department’s Fiscal Monitor, which tracks monthly data, suggest that Ottawa is on pace – at least up until the end of August – to post a deficit much lower than that.

Trevor Tombe, an economics professor at the University of Calgary who closely follows federal finances, said the federal government would likely post a deficit of about $35-billion for the full fiscal year — if Ottawa did nothing from September to the end of March to affect its revenue or spending. That would be less than half what was projected a year ago in the budget.

The main reasons for the lower deficit have been an increase of 7.1 per cent in federal revenue so far this year, due largely to Ottawa sucking up more income tax. That’s despite a sluggish economy, a tariff war with the United States and a cut to the lowest federal income tax rate – to 14 per cent from 15 – that kicked in July 1, 2025.

Government coffers at both the federal and provincial levels have also been juiced by a spike in the prices of a number of natural resources, particularly oil, and higher-than-expected inflation.

But Tombe, also director of fiscal and economic policy at the School of Public Policy, emphasized that the government still has about half a year to make policy changes that affect spending and revenue.

“Political choices will affect things,” said Tombe.

And some of those choices will be unveiled Thursday in the Carney government’s second budget.

As reported in late October in National Post, the budget will also provide a boost for Canada’s small and medium-sized businesses, including an effort to cut red tape. The government is also expected to include measures to support affordability, support housing, Canadian culture and tax reform.

As also reported last month in the Post, the budget will also include tax changes designed to spur economic growth. One possible measure, a formal review of Canada’s corporate tax policies, would meet a Liberal campaign promise.

“It’s a growth and competition budget,” said a senior government source.

The government has already made a series of moves that will affect federal finances – and the economy — in the coming months. Champagne already announced a holiday on the federal excise tax on gasoline and diesel until the end of January, while Prime Minister Mark Carney announced a new mega-deduction that it hopes will spur investment, particularly in capital-intensive industries such as energy, mining, and technology.

The mega-deduction, which has not yet become law but may well be included in the budget, is expected to cut Canada’s projected tax rate on new investment, a key metric for large investors, by slightly more than half, to about 6.4 per cent from 13 per cent. The price tag for the changes is an estimated $36.5-billion over the next five years.

Unexpected changes to economic growth or natural resources prices or other surprises would also affect the government’s revenue and the deficit.

There’s also added economic uncertainty because of Canada’s unsettled trade relationship with the U.S., the Trump tariffs on dozens of countries, and wars in Iran and Ukraine.

Michael Chong, the Conservatives’ finance critic, said the deficit may be on pace to fall but the country’s debt payments, which account for one of the largest parts of the federal budget, continue to grow. Canadians can also expect the Carney government, which has yet to fully account for its hefty defence spending promises, to keep spending, Chong said.

“He’s a big-spending Liberal,” the Ontario MP said of the prime minister.

Champagne, meanwhile, continued Wednesday to give every indication that reducing or eliminating the deficit is not a top priority. While in Montreal to take part in the finance minister ritual of buying a new pair of shoes for a federal budget, Champagne repeated his mantra that Canada has the strongest fiscal landscape in the G7, which means more room to spend on its priorities.

“The market has seen we have the fiscal discipline,” the minister told a mostly business crowd in Ottawa on Monday night.

John Fragos, a spokesman for Champagne, declined to comment on what Ottawa’s revenue numbers will look like in the budget.

The big picture of federal finances, however, is that Ottawa continues to rack up more red ink. The federal government has now accumulated more than $1.3 trillion in total debt, almost half of which has been added over the last six years.

Ottawa’s annual fiscal results also paint a grim landscape that seems to be darkening.

The pandemic year of 2020-21 was by far the worst deficit ($327.7-billion) in Canadian history, but each of the 10 worst deficits in Canadian history in absolute terms have occurred since 2009-10.

Seven of the eight worst years have been much more recent than that, each occurring since 2019-20. The only outlier was 2009-10 following the global financial crisis.

Last year’s $55.3-billion deficit was the fifth worst ever.

But economists have emphasized that the government shouldn’t use a windfall that may be short term to justify extra spending. Tombe said the government should focus on long-term policies to benefit the economy.

Don Drummond, a former executive at the Department of Finance and a fellow at the C.D. Howe Institute think tank, said the government needs to take a more prudent approach to spending because oil prices may not remain high, population growth has waned and productivity is weak. Carney has already promised tax cuts and extra defence spending, Drummond said.

Although reducing the deficit hasn’t so far been a government priority, the Carney government seems to have taken a more long-term approach to the economy than its predecessor, led by Justin Trudeau. Carney has focused on trying to boost the Canadian economy: infrastructure for exports and commercial transportation, trade relationships, and improving the investment climate.

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