The Federal Budget: 2026

The government just released its new budget, setting out billions of dollars in spending and tax measures. But what exactly is a budget, and why does it matter? Let’s get into it!

What’s a budget and why does it matter?

Canada’s federal budget is a plan for how the government will collect and spend money over the coming year. It matters because it sets the direction for national spending and shows the government’s goals for the country, especially when tough choices need to be made. And as you know from class, we do need to make hard choices – decisions that affect everyone, from students and families to businesses and communities.

Why this budget really matters

Canada’s economy is facing major challenges, including weak growth, pre-existing productivity problems, and – of course – the ongoing trade war with the United States. As we’ve discussed, these problems threaten our prosperity now and in the future. This budget seeks to strengthen Canada’s economy and reduce our dependence on the United States, but those ambitions come with a taxpayer-funded price tag, which is why the choices in this budget matter.

Budget highlights

Deficit and spending: The federal deficit is projected at $62.3 billion – a big number. We’ll help put this into context in a moment, but what’s important to understand is that while the government has scaled back some program commitments, it will also continue to borrow large amounts to increase investments in Canadian economic security and defence.

Cost-of-living: As your teacher and leading pollster Shachi Kurl has explained, this remains the number one issue in the country and the budget aims to address the issue by investing in job-creating industries, providing money to help offset grocery costs, offering incentives for low-income Canadians to work, and – most notably – investing $44.7 billion to build more homes over the next ten years. The government also aims to end homelessness within the decade, a goal that could also help address public safety concerns and connect people with housing, addiction treatment, and other support.

Business investment and major projects: This budget is hyper-focused on the economy and one of its largest measures is a $36.1-billion tax incentive over five years that allows businesses to deduct eligible investment costs more quickly. In simpler terms, the government is offering tax breaks to encourage companies to buy equipment, improve facilities, and expand production. The budget also details previously announced infrastructure commitments, like fully funding the Mackenzie Highway in the Northwest Territories, helping lower living costs in Indigenous communities and helping businesses reliably access critical mineral deposits. Canadians can even invest in Canadian growth through the new Canada Strong Notes. (We’ll let you explore this on your own, but it is an interesting idea.)

Environment: The budget might not emphasize environmental policies as much as past budgets, but that doesn’t mean the environment has been excluded from the budget. The funding of the Mackenzie Highway will encourage the development of critical minerals needed to build a greener economy, even if these mining projects could risk biodiversity in certain areas. But the biggest ticket item is the financing of the electricity strategy – a multi-billion-dollar plan that could go a long way towards decarbonizing the economy, while also helping the country advance energy security.

Indigenous communities: Another key pillar of the budget is $26.6 billion in new funding for Indigenous communities, focusing mostly on housing construction, but also investing in water infrastructure, education, and support for children and families.

Youth: There’s money in this budget for you! The Canada Strong Pass has been renewed, making national parks free in the summer months, as well as reducing the cost of train travel for young people. And all federal museums will now be free for those under 25.

Military: This budget doesn’t focus as much on defence spending as last year’s budget, but it still features prominently because previously made promises now need to be paid for. The government argues that a stronger military is necessary to protect our sovereignty and meet our commitments to allies.

The potential controversies

Do the debt and the deficit actually matter?

A deficit occurs when the government spends more than it collects in revenue over the year. Borrowing to cover that gap adds to the national debt, and servicing that debt costs money in interest. Borrowing can support important investments, but rising debt payments can leave less room for other priorities.

This budget puts that trade-off into perspective: Ottawa expects to spend $60.2 billion on debt charges this year. That is more than the $57.4 billion budgeted for federal health transfers to the provinces. So, yeah, deficits – and the cost of servicing debt – do matter.

The government says it will balance its operating budget next year, but that does not mean the overall budget will be balanced. Borrowing for investments will continue, leaving the government with an overall deficit – confusing, I know! That borrowing adds to the national debt and increases the amount the government must spend on interest.

The important question is whether the investments being made to strengthen the economy, support social services, and invest in building a more robust military justify the cost, now and in the future. After all, within the next ten years, defence spending and interest on the debt (larger, in part, because of investing in the military) are projected to account for roughly 35 cents of every dollar the federal government spends.

Why does military spending matter?

Defence is part of the government’s wider push to strengthen Canadian sovereignty and security. Canada also faces substantial spending commitments as it works toward higher NATO targets – something our allies (particularly the United States) want us to meet. So, there is an economic rationale for this budget item: doing our part to support our allies may also help strengthen the relationships Canada depends on for trade and economic growth.

But there is also the fact the world is becoming an increasingly dangerous place, with major wars in Ukraine and the Middle East, and security threats from the north (the Arctic will be a major focus of military spending) and, depending on how you see things, potentially from the south. In all cases, having a more robust military has become a much bigger priority. Yet paying for that expansion adds to the pressure on federal finances: borrowing more also means paying more interest, leaving less room for other priorities.

Next steps for the budget

As you know from Social Studies, the budget is a matter of confidence. If the government loses the budget vote in the House of Commons, it could fall, potentially triggering an election, even though separate legislation is needed to put many budget measures into effect. That said, with a majority in the House of Commons (thanks to last year’s floor crossings), the Carney government is well positioned to pass the budget.

National impact of the budget

At its heart, this is an economy-focused budget. The government is trying to improve productivity – how much we produce for the time and money invested (explained in Chapter One of our Canada at a Crossroads Series) – encourage businesses to invest, and strengthen growth in uncertain times. The trade war and military conflicts abroad make those goals more urgent, but also harder to achieve. Tax incentives and funding announcements are only the beginning: it will take time to turn promises into projects, and longer still to know whether those investments deliver the hoped-for returns.

Natural resources are central to this approach because they are one of Canada’s major economic advantages. They have also given Ottawa more room to spend: higher oil prices have significantly increased projected federal revenues. That additional revenue helps make room for commitments ranging from Indigenous housing and infrastructure to a proposed tax credit for artists and a major expansion of Canada’s electricity grid.

And that brings us back to trade-offs. Relying on oil and gas can help finance public services and investments in cleaner electricity, even as continued resource development creates tensions with Canada’s climate goals and the national nature strategy to protect biodiversity. The same resource economy that creates environmental challenges also helps pay for efforts to address them. (We explore this dilemma in our story: Help the Economy to Help Nature?)

Reflection Questions

So, the question for you is: does this budget strike the right balance? Will the investments make Canada more productive, prosperous, and secure? Are the potential returns worth the borrowing and environmental costs? And if you disagree with the budget, what would you do differently and how would you pay for your promises? No matter your opinion, as your teacher, the Rt. Hon. Kim Campbell, told you, politics isn’t an abstract exercise; these choices will affect you. And that’s why today’s budget is important to understand.