Liberals to unveil 2026 budget amid ongoing economic and trade uncertainty

OTTAWA — The federal Liberals are preparing to table their 2026 budget, marking their second under Prime Minister Mark Carney. The budget will outline the government's economic expectations, projected spending and borrowing, and serve as a basis for legislation and policy initiatives. In addition to new spending items, the budget will update the federal government's immigration levels plan.

With a majority government, the Liberals are well-positioned to get their budget approved. The budget, titled "Maîtres chez nous" or "masters of our destiny," aims to boost productivity, stimulate private investment, and develop infrastructure to help Canadian businesses reach new markets. Ottawa claims this spending on defence and infrastructure is a response to U.S. President Donald Trump's trade aggression and geopolitical volatility.

Analysts expect the government to continue borrowing and run relatively deep deficits to reduce economic dependence on the United States while supporting industries affected by tariffs. The parliamentary budget officer predicts that debt-servicing costs will be the fastest-growing expense on the government’s balance sheet. Critics argue that high debt costs can crowd out other government spending priorities and limit Canada’s ability to respond to future shocks.

The Liberals regularly cite Canada’s strong sovereign credit rating compared to its G7 peers to justify their borrowing plans. Conservative Leader Pierre Poilievre has been critical of the government’s deficits and is calling for Carney to curb "out-of-control spending." The Liberals have promised to reduce spending on day-to-day government operations, aiming for federal borrowing to be solely for capital investments like major projects.

They also pledge to shrink deficits as a share of the economy. Fiscal experts predict that Ottawa will post slightly smaller deficits in the coming years than those projected in the April economic update, despite recent spending announcements and higher global oil prices from the Iran war, which have increased federal revenues and offset those expenses.

In the 2026 budget, Ottawa needs to demonstrate how the higher borrowing track can produce measurable economic results. The Institute of Fiscal Studies and Democracy at the University of Ottawa argues that the government's plan should attract more private investment from within and outside Canada. One of the major spending items, the "productivity mega deduction," was announced in September and will cost $36 billion over five years.

This incentive encourages businesses to invest in new equipment and machinery to receive upfront tax writeoffs. Finance Minister François-Philippe Champagne announced plans to eliminate some tax burdens for small- and medium-sized businesses in the 2026 budget, which the government views as changing Canada's growth model. The growth model has lagged behind the United States and other peer countries for over a decade, with productivity levels significantly lower.

Bank of Canada senior deputy governor Carolyn Rogers reported signs of progress in the nation’s productivity but emphasized there is still work to do.