Canada Delivers Targeted Spending, Public-Sector Job Cuts to Jolt Economy
By Paul VieiraOTTAWA-Canada said Tuesday it intends to run wider deficits to finance spending and tax measures aimed at unleashing the hundreds of billions in private-sector investment the economy needs to rebuild amid a protectionist U.S.To offset some of the elevated costs, Prime Minister Mark Carney's government said it would cut the size of the federal public-sector workforce by about 5%, or 16,000 jobs.Prime Minister Carney and his Finance Minister, Francois-Philippe Champagne, promised a budget plan packed with bold bets to secure the economy's future amid trade turmoil fueled by President Trump's tariffs. The trade row sparked sharp drops in exports and business investment, forcing policymakers to navigate a new course for an economy that grew too comfortable and too reliant on tariff-free trade with the U.S.Analysts and business groups applauded some of the measures the government wants to introduce, adding they represent the start of a much-needed restructuring of the Canadian economy. At the same time, they added, the blueprint lacked some of the boldness officials promised, such as corporate tax-rate reductions and aggressive writeoffs on productivity-enhancing equipment.Canada said the deficit for the fiscal year ended March 31 came in at 36.30 billion Canadian dollars, or the equivalent of $25.82 billion, about 1.2% of gross domestic product. The annual fiscal shortfall is forecast to swell sharply in the current 2025-26 fiscal year to C$78.30 billion, or 2.5% of GDP. Excluding the pandemic period, the deficit would represent one of the biggest shortfalls, as a share of the economy, since the 2008-09 global financial crisis.The deficit as a share of GDP is expected to decline over the course of this decade, to 1.5% by 2029-30. The deficits reflect an acceleration in defense spending, of about C$60 billion over five years, to meet expenditure benchmarks set by the North Atlantic Treaty Organization; and additional capital spending of C$32.50 billion over five years, that the Carney government hopes can attract up to C$500 billion in business investment in the next half decade.Officials estimate that President Trump's tariff policy will lead to a bottom-line deterioration of C$7 billion annually in the next five years."This is an investment budget that will make Canada more resilient, more prosperous and the strongest economy in the Group of Seven," Champagne said.Alongside new spending are cuts to the federal public sector, where hiring under former prime minister Justin Trudeau outpaced employment growth in the national economy. Champagne said officials would cut C$60 billion from operating expenses in the next five years, or up to C$13 billion annually. This will translate into job cuts representing 4.5% of the federal workforce, or 16,000 jobs. Once attrition is accounted for, officials expect a 40,000-reduction in federal public-sector employment, or a drop of 10%."This is a fairly prudent budget given the circumstances, which are absolutely extraordinary," said Robert Asselin, a senior aide to a former Canadian finance minister and now chief executive of U15, a coalition of universities. "It's well balanced, reflecting the limit they could spend and how much they can trigger in private investment."Jimmy Jean, chief economist at Desjardins Group, said the budget marks a solid first step toward shifting government priorities from wealth redistribution, as was the case under Trudeau, to rekindling growth through business investment--which currently sits at 2015 levels and is a major reason behind Canada's dismal productivity record.Jean, however, said the budget plan fails to incorporate the ambitious tax measures the country needs to attract investment. "You never see a productivity renaissance with the government leading it," he said.Champagne countered this criticism, arguing some of tax-deduction measures mark a shift that will position Canada as having one of the world's most competitive corporate-tax systems.Write to Paul Vieira at [email protected]