Commentary
By Jake Fuss

Last week, the Carney government tabled its second federal budget since taking office in March 2025. And despite Prime Minister Carney’s claim that his team are “good fiscal managers,” his government will post a $62.3 billion deficit this year followed by deficits of at least $52 billion in each of the next four years.

Consequently, with no balanced budget in sight, on a per-person basis, total federal debt will eclipse a projected $68,131 by 2030/31—an increase of 22.5 per cent since Carney took office (inflation-adjusted). And by 2030/31, total federal debt will reach a projected $3.15 trillion. If this is good fiscal management, we may need to redefine the term.

Why is this happening?

Predictably, the government has claimed the deficit is a result of “investments” and, to some extent, U.S. tariffs. And while tariffs have undoubtedly hurt Canada’s economy, the main problem is rapidly rising spending. Indeed, according to the budget, the Carney government has increased spending by $6.1 billion this year compared to Carney’s spending plan from only seven months ago.

Meanwhile, Canada’s economic prospects remain weak. Long before Trump’s tariff war, prosperity in Canada was already waning. Canadian living standards and incomes have grown at a meagre pace since the turn of the century and we’ve fallen further behind the Americans.

In 1999, per-person GDP (an indicator of living standards) was $10,766 lower in Canada than in the United States—but that doubled to $23,757 in 2024. And in 2010, the typical Canadian worker earned $6,126 less than the typical U.S. worker—but by 2024, that gap had grown to $8,663. (All numbers adjusted for inflation.)

During that time, beyond external events including the oil price collapse in 2014, government policy has held us back. Canada has uncompetitively high taxes, a burdensome regulatory environment, interprovincial trade barriers and a massive government sector. Business investment collapsed over the last decade and productivity—a key driver of worker incomes— has only grown slowly.

Given our poor economic performance, in Thursday’s budget the Carney government should have introduced comprehensive tax and regulatory reforms. Instead, it made tweaks in the tax system and introduced more government spending.

Last year, the government reduced the lowest personal income tax rate from 15 to 14 per cent and recently announced its “productivity mega deduction” that allows businesses to immediately write off eligible assets such as machinery and equipment. But the personal income tax cut does little to attract high-skilled talent to the country—Canada’s top combined (federal and provincial) income tax rate of 53.5 per cent is the fifth highest among advanced economies. And the productivity deduction will distort investment decisions because some businesses will benefit substantially from the new policy while others will receive little or no benefit.

In Thursday’s budget, the Canada Growth Incentive—which provides a tax exemption on up to $15 million in capital gains on eligible investments—may help generate additional investment but does not go nearly far enough to make Canada sufficiently competitive on taxes with other countries including the U.S.

In reality, despite any rhetoric, tax rates on individuals and businesses remain essentially the same as they were under Justin Trudeau, and the complex web of regulatory obligations for energy and infrastructure projects remains in place (though a lucky few businesses can curry favour with Carney’s cabinet to circumvent that process via the Building Canada Act). Budget deficits—which will total a projected $288.7 billion between this year and 2030/31—also signal to investors that future tax hikes are likely.

A man of Prime Minister Carney’s knowledge and experience knows that to spur investment, create jobs, attract high-skilled workers and drive entrepreneurship, his government must reduce personal income tax rates and the headline business tax rate. Yet he’s content to tinker around the edges.

The 2026 federal budget follows the same playbook Canadians have seen for more than a decade—high taxes, heavy regulation, increased spending and red ink. We’re stuck in quicksand until Ottawa changes course.

Jake Fuss is Director, Fiscal Studies, Fraser Institute.