Budget 2026 projects $62.3B deficit, launches $25B fund

The federal government projects a $62.3-billion deficit for 2026-27 in Budget 2026, tabled Thursday by Finance Minister François-Philippe Champagne, as it creates a $25-billion sovereign wealth fund and a new tax break meant to spur business investment.

The budget, titled Masters of our destiny, forecasts a deficit of $39.3 billion for 2025-26, the year ending March 31, which is $27.5 billion lower than projected in the spring economic update. The 2026-27 shortfall is $62.3 billion, or 1.8 per cent of gross domestic product, and the deficit stays above $52 billion every year to 2030-31, when it is projected at $52.9 billion, or 1.3 per cent of GDP.

Federal debt is projected at 39.9 per cent of GDP in 2026-27. The government says it remains on track to balance day-to-day operating spending with revenue by 2027-28, a year earlier than it had promised, with the remaining deficit going to capital investment.

For households, the budget proposes a one-time 50 per cent increase to the Canada Groceries and Essentials Benefit for the 2026-27 benefit year, paid in early 2027. The government says that means up to $339 for a single person without children and up to $679 for a couple with two children.

It also proposes a refundable Canada Caregiver Credit worth up to $1,260 a year starting in 2027, a new Build Canada Workers Benefit, and a National Heat Pump Rebate of more than $2 billion to help up to 820,000 households switch to heat pumps. Ottawa says the rebate and other efficiency measures would save Canadians more than $1 billion a year on energy bills once fully in place.

The federal fuel excise tax suspension stays in place until Jan. 31, 2027, according to the budget documents, which show relief falling to 50 per cent from Feb. 1 to March 31, 2027. The suspension cut up to 10 cents a litre on gasoline and up to four cents on diesel.

On housing, the budget commits $44.7 billion over 11 years on a cash basis toward a goal of ending homelessness within 10 years and expanding non-market housing. It also promises new rules requiring more public information on insured mortgage rates so buyers can compare them.

The centrepiece for investment is the Canada Strong Fund, which the government calls Canada’s first national sovereign wealth fund. It would invest $25 billion in major projects and high-growth Canadian companies, and Canadians would be able to buy Canada Strong Notes to invest in it directly.

A new Productivity Mega Deduction lets businesses write off the full cost of eligible investments bought on or after Sept. 15, 2026. Finance Canada says it cuts the marginal effective tax rate on new business investment from 13 per cent to 6.4 per cent. A new Canada Growth Incentive would exempt up to $15 million in capital gains on eligible investments in high-potential Canadian businesses.

The budget also includes more than $50 billion for a national electricity strategy aimed at doubling grid capacity by 2050, $6.5 billion over six years for the forest sector, $2.3 billion for critical minerals, and a $930-million expansion of the scientific research tax credit.

On defence, the government says Canada is on track to spend four per cent of GDP on defence this decade and five per cent by 2035, and it commits $7.6 billion over five years to extend Operation REASSURANCE, the Canadian Armed Forces mission in Eastern Europe.

Other measures include more than $50 billion over 10 years for reconciliation with Indigenous Peoples, $300 million over two years for CBC/Radio-Canada, $134 million over four years from 2027-28 for local journalism, and free entry to national museums for children and youth under 25.

The budget also links the new spending to slower growth in the government’s day-to-day costs. It says direct program expenses grew an average of eight per cent a year over the past decade and will grow less than two per cent a year from 2026-27 to 2030-31. Measures announced since the spring economic update add about $151 billion in net support over five years, according to the budget.

Earlier on Thursday, Canada News Media looked at what to watch in the budget, including how much RESP grants add per child.