CIBC’s Roman Dubczak, Avery Shenfeld, and the Hon. Lisa Raitt unpack the Canadian Federal Budget, addressing its long-term growth strategy and implications for businesses and voters. The discussion highlights major spending initiatives, deficit projections, and political considerations.
CIBC PERSPECTIVES
Dissecting Canada’s Federal Budget
Roman Dubczak
Deputy Chair, CIBC
Hello, everyone. I'm Roman Dubczak, Deputy Chair at CIBC. Today's webcast is an exciting one. Avery Shenfeld, Chief Economist at CIBC. Lisa Raitt, Vice-Chair, CIBC. We're going to dissect the Canadian Federal Budget, which was announced yesterday. It was Prime Minister Carney's first federal budget as Prime Minister. Lots to unpack in this budget is to say the least, but perhaps, and we're going to start today. Avery, what are your top line views on, you know, the headlines of the federal budget and all the dissect some of the other points after.
Avery Shenfeld
Managing Director and Chief Economist, CIBC
Well, what we called our write up, relating to, Canadians will have to be patient. Your patience will be appreciated. Because, in terms of looking for the macroeconomic impact of this budget, it is going to take time. When you're spending on major projects, which is a lot of the emphasis, or even defence spending, that spending will roll out into the economy at the earliest, really in 2027, 2028, and it will add a bit of lift to growth. We're estimating about 0.6% on the level of GDP in 2027. That's not trivial. It's not huge. But the real benefits are after that, after you've installed that additional capital equipment, the additional infrastructure. The idea is that the economy can be on a better growth path. But if Canadians are looking for that better growth path, they're going to have to be patient. It's a longer-term story. A budget really that was thinking long-term rather than what we've often seen during an economic slowdown, is sending out cheques to people and hope they spend the money. This was not aimed at doing that.
Roman Dubczak
Deputy Chair, CIBC
And to coin a phrase I heard this morning, if I may, it was ‘an economists budget’.
Avery Shenfeld
Managing Director and Chief Economist, CIBC
It certainly was. It was, it was. You know, I think Mark Carney's influence over this budget is very apparent. He's obviously very pleased with his workmanship on it. I'll leave it to Lisa to talk about what the voters might think about that. But it was a budget written by an economist, really, for economists.
Roman Dubczak
Deputy Chair, CIBC
Okay, good. Well, that's a good throw to Lisa. Lisa, what are your top line impressions?
Hon. Lisa Raitt
Vice-Chair, CIBC
Top line impression? I actually want to see the budget be announced yesterday.
Roman Dubczak
Deputy Chair, CIBC
- Great.
Hon. Lisa Raitt
Vice-Chair, CIBC
That was a really long speech that François-Philippe Champagne gave, but I think he needed to try to set the framework as to why are we having this kind of crisis budget? It's a crisis budget. They're talking about a transformational kind of change in how Canada approaches their economy and their trade. They have to sell it to Canadians. It’s like Avery said, the voter has to understand why are we seeing a big deficit, why are we seeing so much defence spending? And we'll know whether or not, about in a week, whether or not they've been successful in getting that out to Canadians. You'll notice that there was some mention of Donald Trump, not a whole bunch of it. The reason why we're making these big fundamental changes is because of our situation in trade with the United States. And the Prime Minister was attempting, I think, maybe successfully. We’ll see. I think he's attempting to tell both corporate Canada and small or medium size manufacturing that we are going to put in place steps that are going to help you make it through this period of time when we have uncertainty with tariffs, with the United States. The problem is we don't know when that ends. So, it's kind of open ended in terms of how long we're going to have to have these unique and I would say, different ways of approaching our economy.
Roman Dubczak
Deputy Chair, CIBC
Avery, we'll go back to the politics in a sec, but Avery, your comments earlier on growth and how the trajectory for growth has changed. Did the budget impact or will it impact in your view your curve for growth going out, say 3 or 4 or five years in Canada?
Avery Shenfeld
Managing Director and Chief Economist, CIBC
It probably will. It all depends on what these major projects are. I always like to remind people that Mirabel Airport was infrastructure, and it was a white elephant. The money that we poured into electric vehicle and battery plants, not clear that's going to have the economic benefit. So it is about the choices, the specifics about what projects are actually funded, what the lower tax rates on certain investments, what kind of investments those stimulate and so on. So well, the judgment is still out. I think in the near-term, though, we do have to recognize that there's a bit of push and pull here. You've got some cuts coming, you know, not drastic but some paring back of operating spending. You've got some job losses in the civil service. Some of those may happen before we actually see the lift to the economy from the capital spending, the infrastructure spending. So, I don't really think it changes the 2026 outlook materially. It's going to be a sluggish year because of the tariffs Lisa mentioned, the uncertainties about where those tariffs are going are going to weigh on business sentiment and weigh on employment growth. So, we're going to have to tough it out, through what's probably going to be a fairly sluggish growth rate in 2026. And wait again with patience for some of the lift that this budget might actually deliver.
Roman Dubczak
Deputy Chair, CIBC
- Right. And then the other implication of what you're just seeing and how this is all playing out are the deficits. The projections are different from what it was a year ago, and then prospectively. How do you think the bond markets are going to react to the deficit news?
Avery Shenfeld
Managing Director and Chief Economist, CIBC
Well, of course they were bracing for bigger numbers. It was well telegraphed that we were spending more on defence, infrastructure. And we have a soft economy that's going to impact revenues. Our estimate had been somewhere between $80 and $90 billion for this year's deficit. Came in instead, you know, $78 billion. So, a little on the low side. That's partly because the revenue forecast for 2024-2025, the prior fiscal year, was actually revised upwards from what was in the fall statement. So, that revenue base carries into the current fiscal year. And actually, the borrowing requirement for this year is also lighter than the market had expected, because there was a gap between the pension accruals that go into the budget deficit number and the actual cash requirements. So, they don't have to borrow more than people thought. And certainly not as much as the market was braced for. So, I think the bond market as a whole should be okay with this. There's a bit of extra supply coming because they're ramping up the CMV program. But overall, you know, if you look at the budget deficit, it's not great at 2.5% of GDP. If you throw in the provinces, we might be as high as 4.5% of GDP. But look at our counterparts in Europe or the US running a 6% deficit at the federal level despite being near full employment. We actually don't look bad in a beauty contest where, maybe the contestants aren't all so great looking fiscally. We don't look any worse than anybody else. If I have one concern there is that, if you look at the projection for my favourite measure of fiscal sustainability, which is the interest cost, either as a share of revenues or as a share of GDP, it is creeping up. Now, it's nowhere near where it was when Jean Chrétien took the big assault on the deficit, but it's creeping up. I'd like to see at some point a projection that shows it stabilizing and leveling off. But if you actually look at the budget, that doesn't really happen here, at least in the next few years. So, we're going to need those better growth numbers to make the denominator GDP look a little better because we are borrowing more. We're going to add to interest costs over time.
Roman Dubczak
Deputy Chair, CIBC
Okay. Lisa, shifting from economists to maybe mathematicians or investment bankers. By my count, the government's two votes short...
Hon. Lisa Raitt
Vice-Chair, CIBC
They are.
Roman Dubczak
Deputy Chair, CIBC
getting this approved, in terms of the majority government aspect to it. What's your view on how this plays out in the approval process going forward?
Hon. Lisa Raitt
Vice-Chair, CIBC
I think the Prime Minister's office is hunting for more than just two votes on the budget, and I think they're hunting for Conservatives or NDP or Bloc, maybe not Bloc, to cross the floor and join the government caucus so that they will have a real majority rolling forward. This isn't the first vote on the budget. There are going to be three confidence motions on this budget. They'll be confidence motions on the implementation acts. They'll be confidence motions on the main estimates. So, this is not the last time we're going to see a vote on this budget. But they've got all of these things to get through. So, they're probably going to be trying to figure out how to ensure that it's not just this one vote we need to get through. We need to get through all the votes associated with implementing this vision that they have right now.
Roman Dubczak
Deputy Chair, CIBC
Interesting. So, there's a lot to unpack here. And I'm going to ask you in a lightning round, so to speak. There is a lot in this budget like what are some sleeper issues or sleeper items in the budget that you feel might actually, you know, not be more controversial but you know, really add maybe more value than people kind of see initially.
Hon. Lisa Raitt
Vice-Chair, CIBC
Well, I'll start with the negative sides. The flanks that he hasn't covered off is, from the NDP’s perspective, the 40,000 job cuts in the public service. That's going to be a sore point. The Conservatives are really, I think, successfully plumbing the vein where the problem with the budget is it's very perspective on what's going to happen in the future. And if you're sitting down at the kitchen table this morning, you don't see anything in there for yourself. You're saying, well, what does this all mean? So, they're going to really ramp up that kind of communication. And that will be the hard part. I think, one of the things that will be of interest is, they're really starting to give more autonomy to agencies outside of the federal government that actually can execute on the plans. So, Canada Infrastructure Bank got another $10 billion. You've seen some more mention of the Major Projects Office. Now they're talking about major project financing, all of this kind of leaving Treasury Board and Department of Finance, which, if it works, will really streamline and speed up what's going to be happening.
Roman Dubczak
Deputy Chair, CIBC
Yeah. Notable also, I think, is the Indigenous Loan guarantee program is now open to greenfield projects, which is if you're watching that space is a big, a big change.
Hon. Lisa Raitt
Vice-Chair, CIBC
Yeah.
Roman Dubczak
Deputy Chair, CIBC
Avery, any sleeper issues in the budget that you think we should look out for?
Avery Shenfeld
Managing Director and Chief Economist, CIBC
So, I think, there wasn't quite as much for housing as has that been bandied about. I think municipalities may not be that happy. They thought maybe they would get a cheque to cover some of the development charges if they cut them, they thought maybe the federal government pick it up. The federal government is saying in this budget what we're going to pay for some infrastructure related to municipalities that may not be as much as hoped. I would say that, in terms of how well this works, a lot of this is also relying on the private sector to step up.
Roman Dubczak
Deputy Chair, CIBC
Yeah.
Avery Shenfeld
Managing Director and Chief Economist, CIBC
Like basically they're saying, look, we're giving you some tax incentives, some accelerated appreciation. We're going to participate in projects and so on, but there has to be a project. You know, and the government has emphasized this, like in terms of, for example, a pipeline, you need someone to want to build a pipeline. So, we need it really is going to depend on how much confidence the private sector has in Canada's future in these projects. And their willingness to then open their wallet to join the government's wallet. Because, at the end of the day, the government is somewhat limited in how many dollars they can put into the economy without taking the deficit to levels that the market might be concerned about. And they're really relying on this sort of multiplier effect. So, that's why, to some extent, we're going to have to see how these businesses respond. It's not a budget aimed at getting Canadians to spend more of their own money, for example. It's not that kind of budget, but it is a budget aimed at getting businesses to spend more of their money. And we'll have to see how that actually plays out in the years ahead.
Hon. Lisa Raitt
Vice-Chair, CIBC
Can I add one more political thing? You'll get a good measure of how confident the government is in their budget, and how it's hitting Canadians by looking at when the by-elections are going to happen. So, as you know, Chrystia Freeland has announced she is not going to be running again, probably only a matter of time until Mr. Wilkinson decides that he wants to do something else. Or there's lots of rumors around other former cabinet ministers taking up diplomatic posts. The timing of all that really is in the hands of the government. When will they announce these posts and who is going where? If the government feels pretty good and confident about their budget that it's landing, they'll probably try to have those by-elections soon and then run those by-elections on this budget. But if they're feeling a little reticent that it may not be landing, you may be seeing these MPs sitting in the Parliament for a little bit longer than they had anticipated.
Roman Dubczak
Deputy Chair, CIBC
Very interesting. Yeah, we'll keep an eye on that. Avery, Lisa, thanks for helping unpack, just a little bit of what was a very detailed budget, ‘a long speech’, as you said, Lisa. So, please, for all our clients, watching today, reach out. We have an organization and a team here at CIBC that's really quite ready to deal with all these issues for you and help unpack the issues of the federal budget. Thanks for joining us here today, and hope to see you again soon.
CIBC PERSPECTIVES:
Dissecting Canada's Federal Budget
Hosted by:
Roman Dubczak, Deputy Chair, CIBC
With:
Avery Shenfeld, Managing Director and Chief Economist, CIBC
Hon. Lisa Raitt, Vice-Chair, CIBC
All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change.
® The CIBC Logo is a registered trademark of CIBC, used under license. The material and/or its contents may not be reproduced without the express written consent of CIBC.