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By Jake Fuss and Grady Munro
On Tuesday, the Carney government tabled its first budget since taking office in the spring. Despite the new face at the helm, Carney’s budget unfortunately relies on the same failed economic strategy the Trudeau government pursued for a decade.
For starters, Carney’s economic plan calls for more government involvement in the economy. Ottawa will become a home developer, pick winners and losers from a bevy of major national energy project proposals, implement a new “climate” strategy, and substantially increase federal spending and borrowing. The budget also keeps income taxes high while failing to reduce the huge regulatory barriers that entrepreneurs, investors and businessowners face from coast to coast.
On the fiscal front, the government plans to spend $585.8 billion this year, an increase of $27.5 billion compared to the Trudeau government’s final forecast last December. Consequently, due to increased spending and a decline in projected revenue compared to last year, the federal deficit will reach a projected $78.3 billion this year, which is $36.1 billion more than the Trudeau government’s last forecast. Deficits over the next three years will average $62.3 billion (more than double the Trudeau government’s forecast) and total debt will reach a projected $2.9 trillion by 2029, which is $266.4 billion higher than last fall’s forecast.
According to the Carney government, all of this new spending and government intervention will generate more investment and economic activity in the private sector. However, according to the empirical research, when governments run deficits they borrow money and increase the demand for available savings, which pushes up interest rates and makes it more expensive for everyone (governments, individuals, families and businesses) to borrow money. This makes private investment costlier and thus reduces the amount of private investment. In other words, the Carney government’s big deficits will likely crowd out private investment in Canada’s economy.
And to pay for today’s spending and borrowing, the government in the future will likely raise taxes (which are already uncompetitive compared to the United States), fuelling more uncertainty for investors, entrepreneurs and businessowners.
We’ve seen all this before. For years the Trudeau government increased spending, ran deficits during good times and bad, and inserted itself further into the economy through heavier regulations, taxes, and subsidies provided to favoured firms and industries (a.k.a. corporate welfare).
The results were disastrous. Canadian living standards (measured by per-person GDP) declined between mid-2019 and mid-2025. Private-sector job creation was anemic and worker incomes in every province have fallen behind that of American workers in every U.S. state.
It didn’t have to be this way then and it doesn’t have to be this way now. The Carney government’s first budget should have diverted from the last 10 years of failure and paved a path where workers, entrepreneurs and investors face fewer obstacles to generate prosperity and create jobs. The government should have taken a back seat, but again, it opted to hop right back behind the wheel.
We need less meddling from Ottawa in the economy, not more. Unfortunately, based on Tuesday’s budget, Prime Minister Carney is poised to repeat the same mistakes as Justin Trudeau.
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