Federal Spring Fiscal Outlook Improves as Canada Strong Agenda Takes Shape

The Carney Liberal government was buoyed to majority level after a series of floor crossings over the past six months, culminating in a trifecta of by-election wins. Finance Minister Francois-Phillipe Champagne was also able to announce a stronger than expected fiscal outlook despite ongoing challenges with global trade and the Strait of Hormuz.  

Rather than running a victory lap, the 2026 Spring Economic Update (SEU) continues from the projections established in the Budget last fall, establishing a new sovereign wealth fund to finance major projects, and training Canadians to build those projects.

1) Spring Economic Update is the second step of the government’s plan to build a stronger, more independent and resilient Canada

Why it matters: The Carney government spent its first year reassuring Canadians in a precarious world while lowering expectations that change would come overnight. Today’s announcement continues to build a long-term shift in Canada’s trade, resource, and skills training agenda, diversifying away from dependence on the U.S. market and preparing Canadians for future economic and employment disruptions, while addressing the pocket-book impact of disruption. Much of the government’s success rests on the trust in Prime Minister Mark Carney specifically, and this document is designed to maintain and enhance that trust.

The details:

• Canada’s own sovereign wealth fund, the Canada Strong Fund (CSF), will seek market-rate returns to finance new major projects
• “Team Canada Strong” will recruit, train, and hire 80,000 to 100,000 young Canadians to help build new housing, defence, and infrastructure
• Legislation to reduce the contribution rate to the Canada Pension Plan from 9.9% to 9.5% in 2027, saving about $130 each year for someone making $70,000
• Standing up the Financial Crimes Agency to investigate serious and complex financial crimes and recover the proceeds of crime
• Six Pillars of the new National AI Strategy, with the full strategy still to be released

The bottom line: Public opinion research shows Canadians giving Prime Minister Carney a mandate to deliver more economic and sovereign security for the nation. Today’s measures are a mix of the immediate, medium term, and long-term change to deliver on that mandate.

2) By the numbers: the government’s projected deficit decreases by $11 billion

Why it matters: The Spring Economic Update attempts to balance fiscal restraint, helping Canadians with affordability and large capital investments. Boosted by a stronger than expected labour market, the government is now on track to eliminate the operating deficit by 2028-29 after which it will solely borrow to finance new capital investments.

The details:

• The SEU indicates a deficit of $66.9B for 2025-2026, down from the $78.3B deficit projected in Budget 2025
• The single largest driver of the fiscal improvement was resilience in the labour market driving both higher-than-expected personal income tax (PIT) revenue and lower Employment Insurance payments
• Revenues were also buoyed by higher corporate income tax (CIT) revenues, especially in the financial services sector – higher revenues from PIT and CIT are expected to continue into 2026-2027
• Spending was slightly lower than expected due to delays in the Clean Economy investment tax credits and electric vehicle battery manufacturing support

Changes in Tax Revenues for 2025-2026

The bottom line: Despite global economic headwinds, the Canadian labour market is facing low hire, fire, and quit dynamics. The government is positioning Canada as a safe market for investments based on Canada’s strong fiscal position. As proof, they trumpeted the highest level of international investment in the country in twenty years.

3) Distinguishing between a wealth of funds

Why it matters: Canada established a buffet of new financing bodies over the past decade with the Canada Infrastructure Bank (CIB), the Canada Growth Fund (CGF), and the Canada Indigenous Loan Guarantee Corporation joining Export Development Canada, Business Development Canada, and others, in bringing government funding to private initiatives.

As discussed in StrategyCorp’s analysis of the 2025 Budget, while this government has been laser focused on long-term change, there is a need to connect the dots on how these long-term investments will deliver impact for ordinary Canadians. In addition to funding major projects, the creation of the new Canada Strong Fund attempts to address the political risk of Canadians not feeling like they have a direct stake in these major projects.

The details:

• Mandate confusion will need to be addressed in a newly announced review of all the funds later this year, but there is already some clarity in mandates for the new sovereign wealth fund
• The CIB, CGF, and others are concession financing to crowd-in private funding and make economically marginal projects move forward. They are designed to eventually exhaust their start-up capital and require replenishment
• The CSF is designed to grow in perpetuity, and with the ability for Canadians to invest directly into the fund
• The Canada Strong Fund will make investments based on pure economic return, planning to grow and return those profits back to Canadian retail investors

The bottom line: While early rumours sparked concerns about the CSF being funded by a windfall on oil and gas profits, the reality is that it is funded through federal government general revenues and, eventually, investments from Canadians. More details are expected on how this fund will function after consultation with market participants and regulators.

4) CPC attacks the SEU on deficits; the NDP focuses on Disability Tax Credit

Why it matters: Conservatives are returning to their core fiscal narrative using this latest fiscal update to emphasize their deficit concerns. The NDP could look to use the SEU to criticize the government from the left as Avi Lewis works to position his party’s priorities.

The details:

• Echoing his party’s comments in the days leading up to the Spring Economic Update, Pierre Poilievre’s first comments on the SEU described the document as “costly credit card budgeting” while highlighting the high deficit number
• In his speech in the House, Poilievre spent a few moments congratulating the government on simplifying access to the Disability Tax Credit before returning to his criticism of rising deficits
• The NDP acknowledged new positive measures related to the skilled trades and the Financial Crimes Agency but criticized the government for not addressing rising wealth inequality, predatory pricing, or implementing a windfall tax on oil and gas

The bottom line: With the Liberals securing a majority, House of Commons dynamics have changed since the tabling of the budget in the fall. Despite opposition criticisms, the government will have an easier time moving legislation through the House and committees to enact some of the measures announced in the SEU before the summer recess.