OTTAWA – Fiscal experts are calling for transparency from the Canadian government in its upcoming fall budget. This budget is expected to reflect a significant shift in spending priorities, moving away from traditional government programs and focusing more on defense and infrastructure. The federal Liberals plan to present the annual budget this fall, potentially as soon as next month, after skipping the usual spring budget.

Prime Minister Mark Carney's administration has already announced several spending measures during a shortened spring session of Parliament. These include a one-percentage point cut in income tax and increased military investments to fulfill NATO commitments in the coming years. The government has also introduced Bill C-5, aimed at expediting the approval process for major projects, which it describes as a response to the deteriorating relationship with the United States and the need to strengthen the domestic economy amid U.S. tariffs.

Sahir Khan, vice-president of the Institute of Fiscal Studies and Democracy at the University of Ottawa, noted that the fall budget will provide Canadians with their first insight into how the ongoing trade war has impacted the federal government's economic outlook and revenue projections. He emphasized that Carney must communicate the costs associated with shifting Canada's economy away from reliance on the United States. "There's a cost to sovereignty," Khan stated. "At the end of the day, the prime minister is going to have to explain … the cost of being independent as a country in that context. And it's not free."

Analysts anticipate that the budget will reveal a significant increase in Canada's federal deficit for the current fiscal year. The last update from Ottawa in late 2024 estimated the deficit for 2025-26 at $42.2 billion. The Liberals' spring election platform suggested that additional investments could push this year's deficit to approximately $62 billion. However, the fiscal plan also included an expectation of $20 billion in revenue from counter-tariffs on the United States, which have largely been abandoned except for a few sectors.

Randall Bartlett, deputy chief economist at Desjardins, expects that total tariff revenues will fall well below the Liberal campaign's predictions. He pointed out that the combination of the personal income tax cut effective July 1 and a rollback of the expanded capital gains inclusion rate will further reduce Ottawa's tax revenues. "We could see the deficit top $70 billion in the current fiscal year … substantially larger than what was projected back in December of last year," Bartlett said.

Alexandre Laurin, vice-president and director of research at the C.D. Howe Institute, predicts that annual deficits will exceed $60 billion for the next few years as the government pursues aggressive investments in infrastructure and defense. "I'm thinking that the message is going to be, 'Yes, we have very sizable deficits, but that those deficits are driven by productive investment,'" he said.

Carney has characterized the upcoming budget as both an austerity measure and a plan to increase investments aimed at bolstering the economy. Finance Minister François-Philippe Champagne indicated that the government intends to reduce program spending in most departments by 15 percent over three years, which may lead to adjustments in the size of the public service.

A recent analysis from C.D. Howe suggested that the government's spending review may not be sufficient. The think tank projected savings of $22 billion by 2028-29, which is less than half of what it believes is necessary to place federal finances on a sustainable path. Carney's strategy emphasizes "spend less" and "invest more," which includes plans to separate the budget into capital and operational spending, aiming to balance the latter within three years.

Laurin expressed concerns about the lack of formal accounting principles for this separation, suggesting that what qualifies as a productive investment could be subjective. "It’s too fuzzy. It’s not helpful, in terms of a target," he said. Khan compared this budgetary approach to the gender analysis implemented in government documents under former Prime Minister Justin Trudeau, noting that it represents a different perspective on how revenues and spending affect various stakeholder groups.

Experts believe that the new approach will likely shift Ottawa's spending priorities toward capital investments and away from social programs that characterized the previous administration. They do not expect the accounting changes in the budget to alarm credit rating agencies, which will focus on public accounts records to assess the government's fiscal sustainability.

Bartlett remarked, "Budgets are political documents. They're not audited financial statements." He, along with Laurin, suggested that the government should consider delaying some smaller measures from the Liberals' spring platform until it demonstrates a more sustainable fiscal position. This budget will mark Carney's first as prime minister and Champagne's first as finance minister. Bartlett expressed hope for a "fair bit of rigour" in the budget, given Carney's background in the Department of Finance. "I think Canadians and parliamentarians deserve as much transparency as the government is able to give them," he said.