Carney's second budget adds C$142 billion in spending on sovereignty and housing

Deficit tops C$50 billion with no path to balance despite the oil windfall

Prime Minister Mark Carney unveiled the second budget of his term on Thursday, a plan titled Masters of Our Destiny that commits C$142 billion in new spending over the next five years. “That’s what this budget does: it’s the next big step in our action plan to make this country more independent, more sovereign,” Carney said. “It focuses on growth, on people and that sovereignty, so we can live our lives as we wish.”

The windfall paying for the spending comes from better-than-expected revenues from oil prices bolstered by the Iran War. The budget lays the groundwork for a Canada less reliant on the United States for trade, and it promises billions to end homelessness and build new housing. Canada’s deficit is over C$50 billion ($36 billion; £27 billion), with no path to balance.

Despite the new spending, the budget shows Carney has kept his previous fiscal goals intact. Canada still expects its GDP to grow modestly in the next year, outpacing all G7 countries except the US, and its unemployment rate — unsteady month to month — is overall lower than last year.

The spending arrives under pressure. As Canadians continue to feel squeezed by inflation and unaffordable housing, pressure has been building on Carney to translate his major investments into relief for the average Canadian. Some sectors of the economy are also feeling deep pain from US President Donald Trump’s tariffs on key Canadian industries, which have led to thousands of job losses and uncertainty that has slowed business investment.

One of the largest line items in the budget is a C$11.2 billion commitment over the next four years to combat homelessness, including funding for supportive housing, mental health and addictions treatment. Statistics Canada reported last year that one in eight Canadian households have experienced a form of homelessness in their lifetime. The government will also boost a grocery benefit available to low- and modest-income Canadians, which is estimated to provide C$2,570 for a family of four within one year.

The opposition Conservatives have pressed the Liberal government on the cost of living and routinely accused the prime minister of spending too much time on foreign trade missions and not enough on kitchen-table issues. Average hourly wages have not kept up with inflation, according to Statistics Canada, and food bank usage has hit record highs. The average price of a home in Canada has dropped around 22% in recent years, mostly due to a clampdown on immigration, but houses remain too expensive for many in major cities such as Toronto and Vancouver. Rising fuel prices, as in the rest of the world, have made everything from gas to groceries more expensive.

On immigration, the budget keeps levels flat. After record population growth in 2023, fuelled largely by immigration, Canada scaled back its newcomer targets significantly, including a cap on international students and temporary foreign workers, which companies have relied on to ease labour shortages. The Carney government has previously said it will keep its permanent resident admission target at 380,000 people annually until 2028, while gradually reducing temporary resident arrivals to 370,000. There has been pressure on Carney to increase some of those numbers. A report from the Royal Bank of Canada in September warned that “without immigration, the country’s population would shrink to half its size by the turn of the century.” The Conservative opposition, on the other hand, has called on the government to lower its targets further.

A central aim of the Carney government has been reducing Canada’s reliance on the US as a trade partner while cushioning the blow from Trump’s tariffs on key sectors. Last year the government promised millions in backing for businesses working to develop new export markets, and it lowered Canada’s marginal effective tax rate in a bid to stop businesses from moving to the US to escape tariff pains. This budget builds on that with plans to support tariff-hit sectors such as steel and forestry, including C$6.5 billion in new funding for forestry. The BC Council of Forest Industries said in a statement that the support “comes at a critical time for workers.” Since March 2025, the Carney government has set aside nearly C$44 billion in support for workers and businesses hit by US tariffs, the budget notes. “Diversification will take time, given the scale and depth of Canada’s economic relationship with the United States. But the shift is underway,” the budget states.

Sovereignty runs through the budget’s space and cultural spending as well. Canada is the only G7 country without the capability to launch its own rockets, and the budget earmarks C$2.7 billion to develop Canadian space technology and launch infrastructure. On arts and culture, Carney is promising a tax exemption on income made through “original and creative artistic works.” The budget also sets aside C$32.2 million over four years to establish a free national digital library for Canadians, launching with at least 200 titles and with plans to expand in coming years.

On defence, Carney previously pledged to significantly boost spending to meet NATO’s target of 5% of annual GDP by 2035, and this year’s budget provides some insight into where that money is going. A marketplace launched earlier this year to sell Canadian-made drones will receive a cash injection of C$2.3 billion over five years. More funding will also go to Operation Reassurance, Canada’s largest overseas deployment mission, which is aimed at deterring Russian aggression in eastern Europe.