Carney bets on an oil windfall to fund Canada's tax breaks and building boom

Canada's federal government dropped its second budget under Prime Minister Mark Carney on Thursday, and the headline move is simple: take the windfall from higher oil and commodity prices and push it into productivity and infrastructure over five years. Carney kept his previous fiscal goals intact while doing it, per the budget documents.

The math behind the spending spree comes from nominal GDP getting juiced by commodity prices. Pedro Antunes, chief economist at Signal49 Research, pegs the extra room at about C$158 billion across the planning horizon — and notes a good third, maybe more, is aimed at coaxing private-sector investment. In his view, that targets the right problem.

The priciest single item is the Productivity Mega Deduction, which BMO Capital Markets senior economist Shelly Kaushik called the measure with the biggest price tag. She said the deficit barely budged even though spring growth came in stronger than expected, meaning the government chose to spend rather than bank its fiscal room. Kaushik still reads the plan as a pro-growth agenda, noting the deficit profile looks good as a share of GDP largely because GDP outperformed.

Not everyone is buying the arithmetic. Desjardins deputy chief economist Randall Bartlett called it one of the more unusual budgets he's seen, arguing a fair bit of creative accounting was needed to free up room for both higher spending and lower revenues. He said rating agencies will want a closer look, though he isn't expecting an imminent Canadian debt downgrade.

A Finance Ministry spokesperson pushed back, saying the government holds its financial accounts to a high standard and that creative accounting would be highly unusual for a G7 country. The full verdict likely lands once rating agencies finish picking through the numbers.