Mark Carney is making a bet.
He believes massive public investing now will position the Canadian economy to grow in spite of the trade war and the shifting winds of global geopolitics.
By the 2030-31 fiscal year, the federal government will shoulder $85.5 billion in annual public debt charges. By then, Carney hopes the bet will have paid off and the economy will have undergone a transformation.
“[Ottawa] is borrowing money for these major projects, hoping that it really jump-starts the economy,” said Sahir Khan, executive vice-president of the Institute of Fiscal Studies and Democracy at the University of Ottawa.
Khan says the risk is the economy shifts and macro trends change and leave Canada holding a pile of debt that never actually catalyzed growth or investment or created actual jobs.
“There are no jobs created by MOUs and frameworks. They’re done when the projects actually get financed, people get hired and we see economic activity,” said Khan.
Most experts, including Khan, believe the government’s plan is a good idea. They say Canada has not taken steps to boost investment and productivity in years and it shows.
The economy was weak before the trade war began; in 2022, the Bank of Canada warned productivity was reaching emergency, “break glass” levels.
Carney says his plan will address productivity, bring in investment for major projects that will create revenue and build jobs. He says the cost of that is clear, but manageable.
âWeâve got spending under controlâ: Carney on federal budget
The key plank to that is the so-called productivity mega-deduction. That alone is expected to encourage businesses to invest in their companies. It brings Canada’s marginal effective tax rate to the lowest in any G7 country.
There’s also a new Canada growth incentive, an exemption from capital gains that allows entrepreneurs to avoid taxes on up to $15 million in capital gains if those funds are reinvested in a Canadian business.
But those measures cost a lot of money. The productivity-mega deduction alone will cost some $36 billion over five years.
Carney told CBC News after the budget that his government is already taking measures to bring the deficit down.
“We’ve got spending under control, shifting to invest to be masters of our own destiny. Opportunity, affordability and sovereignty. Canada’s moving forward is a fantastic day for the country,” said Carney.
But the risk isn’t just that these bets don’t turn into shovels in the ground or actual jobs.
Adam Chambers, Conservative shadow critic for innovation, science and industry, worries what happens if some other global event crashes into the economy while we have taken on so much debt to deal with the current crisis.
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“There’s no question the probability of there being an event is rising. Certainly the debt markets would suggest that there is some volatility happening,” he said.
The federal government has touted what it calls Canada’s “fiscal capacity.” Canada has not borrowed nearly as much as other advanced economies and, as a result, the borrowing costs here are lower than they are in many other jurisdictions.
But the list of unexpected events that have changed the economic landscape and made debt riskier is a long one.
“There’s a bet being made that there will be no other significant negative shocks. But if the government is wrong, then the financial health of the country could deteriorate actually quite quickly,” he told CBC News.
At Issue | Does Carney’s budget meet the moment?
Chambers says those rising debt service payments should give everyone pause.Â
By the end of the budget’s projections, the deficit will be lower, the debt to GDP ratio will remain within the government’s guardrails. But those debt service payments will be at $85.5 billion and sit as the second largest single expenditure in the budget.
And all that a full two years after the end of Donald Trump’s term as president.
