Canada's next budget to be unveiled this week amid U.S. trade war, economic uncertainty - CBC

Prime Minister Mark Carney, right, and Finance Minister François-Philippe Champagne are shown before the tabling of the spring economic update, in Ottawa on April 28. (Justin Tang/The Canadian Press)Social SharingPrime Minister Mark Carney's second budget — set to be unveiled on Thursday — will include new affordability measures, business tax incentives and investments in infrastructure, defence and culture, according to a senior government source.

Canadians can also expect more details about previous announcements, such as plans for private investment in Canada's four biggest airports and how the government will meet its promise to balance the operational budget a year early.

As well, there could be further explanation of how much foreign direct investment is coming into Canada and, more specifically, where it's being invested, according to the official. There should also be an update on the Canada Strong Fund, the country's first national sovereign wealth fund that Carney announced last April.

"The budget has three pillars," said the official, who is familiar with the budget but is not authorized to speak publicly about it. "Investing in the people, the identity and the growth of Canada."

Finance Minister François-Philippe Champagne unveiled the title and cover of the budget on social media last week.

Next step: November 5th https://t.co/lgOc2RHhbE

"Masters of Our Destiny" in English and "Maîtres Chez Nous" in French is a slogan from the Quiet Revolution of the 1960s in Quebec and an expression the prime minister often uses in his speeches when referring to Canadian sovereignty and what he believes the country must do to guard and strengthen it.

The budget will outline a fiscal plan tightly aligned to Carney's stated priorities for Canada as the country continues to operate under a trade war with the United States and global economic and geopolitical uncertainty.

"Investment in our identity and sovereignty includes investing in economic growth, diversification, creating resilience in the economy, but also investing in defence, culture and infrastructure,” the official said.

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But they said that even though the budget is coming after U.S. midterm elections, it's not in reaction to the midterms. The source insisted that even with so much of Canada's economy being impacted by President Donald Trump's administration, the budget is "not about the U.S."

Perhaps that is because Canada has been dealing with Trump for 18 months, experts observe.

"Essentially the impact of the U.S.-Canada trade dispute is already kind of baked in," said Theo Argitis, senior vice-president of policy for the Business Council of Canada. "I guess one risk is it could get worse, but I think the thing that has surprised a lot of people over the last year is how resilient the Canadian economy has been in the face of this economic shock."

Business groups and other stakeholders have high hopes that their pre-budget submissions to the Department of Finance fit those priorities and have resonated with finance officials.

Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB), said he's optimistic that rumours of a small-business focus in the budget are true.

"We have had more quarters with more businesses leaving their business altogether than new ones starting up. And that almost never happens," he said. "If we want to have more large companies, it starts with having more small companies."

Kelly said there have been numerous supports and programs to help big business through the tariff war with the U.S. Now, he said, it's his members' turn.

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"I don't hold Ottawa to account for the trade war ... but I do hold Ottawa accountable for the fact that while they're suggesting that they're going to provide support to small businesses, that they don’t actually do it."

The CFIB wants the government to reduce the small business corporate tax rate from nine per cent to six per cent and raise the threshold of income that applies under the lower rate from $500,000 to $700,000.

Kelly said he wants Ottawa to lower employment insurance premium rates for smaller employers, and he is proposing a variety of tariff relief programs aimed at small companies.

"I'll take a practical, unsexy tax change any day over something that sounds fantastic ... but doesn't deliver," he said.

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The Council of Canadian Innovators (CCI) is also looking for a new tax credit for the technology companies it represents. It's pushing for a qualified small business tax incentive similar to what is available in the U.S., by which founders and investors of Canadian firms can roll over any capital gains they earn into new investments in Canadian companies.

"How we're evaluating this budget is how is the government making Canada a better place — not only to do business but also to grow your business here and stay Canadian," Daniel Perry, CCI's director of federal affairs, said, adding that the council felt there was "genuine interest" from the Finance Department to the idea.

Perry said tax incentives like the recently announced productivity mega-deduction help businesses that are machinery or equipment-intense, but the measure doesn't assist companies whose growth relies on research and development, people talent and intellectual property.

The CCI is also proposing a new startup visa program to bring in foreign entrepreneurial talent, to replace the program paused by the government due to a number of problems. The council believes the new program could provide applicants with a pathway to permanent residency conditional on business performance.

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Many of Carney's plans are aimed at mid-to-long-term economic goals and transformation. But the source said the government is cognizant of the need to help vulnerable Canadians in the meantime, which is why there will be new affordability measures in the budget.

"We're creating immediate and more medium-term programs to bridge people through this very uncertain time," they said. The official would not specify if there would also be extensions of measures already in place, such as the temporary elimination of the excise tax on fuel.

"The government needs to recognize the pocketbook issues that Canadians are really experiencing today," said Sean Strickland, executive director of Canada's Building Trades Unions, an association of unions in the construction industry representing 500,000 members and 60 different trades.

"I think they would miss the mark if this budget did not include something that reflects the real, everyday pressures that average Canadians are experiencing trying to make ends meet," he said, adding that this is even more true with inflation rising again.

The senior government source also hinted that some of Canada's cultural institutions — both large and small — could see new funding, which would fit under the "identity" pillar of the budget.

That doesn't surprise the Business Council of Canada's Argitis, even though cultural investments are not part of the council's pre-budget submissions to the government.

"We live in a sovereignty era, right? I think it's one piece of that puzzle that the prime minister is trying to create, which is 'How do we become more sovereign? What does sovereignty mean?'" Argitis said, adding that strong cultural institutions are key to identity and unity. "To me [funding culture] seems consistent with the government’s aims."

Carney speaks to the media as he participates in a trilateral meeting at the EU-Canada summit in Montreal on Friday. (Christinne Muschi/The Canadian Press)

Expect the Carney government to try to make the case that there is the fiscal room to do what it wants and still be fiscally responsible — even as it fends off criticism based on a recent Parliamentary Budget Office report that found public debt charges are the government's fastest-growing expense and are projected to reach $83 billion by 2030-31.

"This government has decided it wants to do big things. And to do these big things, it's going to cost some money," Argitis said.

What matters, he said, is the quality of the spending and if it gets the results the government is looking for.

"The stakes are high. They have a lot of ambition, but they have to get it right because if they don't get it right, we're going to end up stuck with these debt charges and nothing to show for it," he said, adding that the government needs to be transparent with Canadians about the costs and deliverables.

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Conservative Leader Pierre Poilievre often accuses the government's deficits of causing the country's inflation, but Desjardins Group's deputy chief economist Randall Bartlett said Canada's budget deficits have a trivial impact on the country's inflation levels.

But Bartlett is calling for a high level of transparency by Ottawa in the budget on its spending, the reasons behind the spending and whether it's going to achieve any of its fiscal anchors — such as the debt-to-GDP-ratio, which measures the country's debt against the size of the economy.

"I'm looking forward to seeing ... some clarity on what's under the hood,” he said. "More transparency on investments ... and a plan to ensure long-term sustainability of federal finances."

Bartlett said he's also looking to see what Ottawa is doing on the housing file because from what he sees, the government is nowhere near its building targets even a year after Build Canada Homes was established.

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Build Canada Homes has committed to supporting the building of 19,000 affordable units across the country, but only about 2,000 of them are currently being constructed.

"One of the largest expenses for most households is shelter, and we still haven't seen the federal government bring forward a lot of the housing measures that it promised during the election," Bartlett said. "I'd like to see some movement on that to improve affordability on the housing front."

But he also said that no government — even the most ambitious — can meet everyone's demands, especially when politics plays a large role in budgets.

"If you can get through the politics and get to the substance, that's always really helpful," Bartlett said. "But, you know, these things are always as much political advertising as they are the nuts and bolts of federal finance."

Karina Roman is a senior reporter based in Ottawa, covering all things political. After a number of years working in CBC local news and current affairs, she joined the parliamentary bureau in 2008. Her beat is finance, which means she has reported on and tried to explain to Canadians almost every federal budget, economic update, finance ministers’ meeting and the like for more than a decade. Before her career at CBC, she worked at The Ottawa Citizen and The National Post. You can email her at karina.roman@cbc.ca.