prime minister
promises a set of tax measures that will help stimulate investment in Canada's economy as the country remains mired in a trade war with its largest trading partner.
The government's fiscal approach includes a target of $500 billion in new private sector investment over the next five years.
Tuesday's Budget includes several tax measures, including immediate spending on manufacturing or processing buildings that are purchased on or after Budget Day and used for manufacturing and processing through 2030. This means a 100 percent expense write-off in the first year.
This measure was proposed by the manufacturing sector and is in line with the US President's incentives.
In the summer, the “One Big Beautiful Bill Act” was adopted, which provided for 100% coverage of the costs of the relevant production structures that will operate until 2031.
The budget also restores the accelerated investment incentive, which provides an extended write-off for most capital expenditures in the first year, and promises to bring back a tax incentive that was previously set to expire at the end of 2024, called the accelerated capital expenditure incentive (CCA) for
equipment and buildings.
However, the CCA now has a new criterion that the incentives will only apply to low-carbon LNG plants. LNG facilities in the top 25 percent of emissions performance will be eligible for a CCA of 30 percent for equipment and 10 percent for non-residential buildings.
Businesses in the top 10 percent of emissions performance will be eligible for a CCA of 50 percent for liquefaction equipment and 10 percent for non-residential buildings. This measure will only apply to properties purchased on or after Budget Day and until 2035. Tuesday's budget did not detail what those emissions requirements would be, but promised to provide details later.
It is noteworthy that
limiting oil and gas emissions
remains in place, but the budget leaves room for its eventual removal.
“Efficient carbon markets, increased regulation of methane in oil and gas, and large-scale deployment of technologies such as carbon capture and storage will create circumstances in which capping oil and gas emissions will no longer be necessary because it will have little value in reducing emissions,” the budget document says.
The government will also continue to implement previously announced fiscal measures, including immediate spending on clean energy generation and energy-saving equipment, zero-emission vehicles, patents, data network infrastructure, computers and capital spending on research and experimental development.
These tax measures, called the Productivity Super Deduction, will cost an average of $2.7 billion a year, and the government projects they could generate up to $9 billion in economic output annually over the next nine years.
The budget also states that Canada now has a corporate tax advantage over its international counterparts. Thanks to the new tax measures, Canada's marginal effective tax rate (METR) dropped more than two percentage points from 15.6 percent to 13.2 percent. This figure puts Canada at the lowest level in the G7 and below the OECD (17.7 percent) and US (17.6 percent) averages.
“Thanks to the productivity super-deduction, Canada's METR is competitive with the U.S. in most sectors, especially manufacturing and processing,” the budget states.
The federal government will also increase the spending cap on the Research and Experimental Development (SR&ED) tax credit from $4.5 million to $6 million to further encourage business investment in research and development.
The growth program remains costly to Ottawa's balance sheet. The Carney government projects a federal budget deficit of $78.3 billion for fiscal year 2025-26; that's more than $36 billion more than projected in the Fall 2024 Economic Report. The deficit is projected to fall to $56.6 billion by 2030.
The federal budget promises $89.7 billion in net new spending over the next five years, of which $33.5 billion will come from capital spending. Taking into account the spending measures announced between the Fall 2024 Economic Update and the Budget, total net new spending since the last budget update through 2030 will be $125.6 billion.
Over the next five years, federal debt costs are expected to rise from $53.4 billion in 2024-25 to $76.1 billion by 2030. Federal debt, excluding financial and nonfinancial assets, is projected to reach $1.347 trillion in 2025-26 and rise to $1.591 trillion by the end of the decade.
The Carney government also promises to find $60 billion in operating savings over the next five years through a comprehensive spending review. This will be achieved by properly scaling programs and improving the efficiency of the federal government. The budget promises workforce adjustments and government employee cuts to return the federal workforce to a “sustainable level.”
Tuesday's budget also announced its 2026-28 immigration level plan, which will stabilize permanent resident intake targets at 380,000 a year over the next three years, up from 395,000 in 2025.
The government is also increasing the share of economic migrants from 59 percent to 64 percent. The plan would also cut temporary resident admissions targets from 673,650 in 2025 to 385,000 in 2026 and 370,000 in 2027 and 2028.
Last month, Carney announced a talent acquisition program that promises to increase the budget by $1.7 billion for recruiting programs.
The overall investment picture over the next five years includes $115 billion for infrastructure and $110 billion for productivity and competitiveness.
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