The last thing Mark Carney’s Liberal government wants to do now is look Trumpy. But you’d think Tuesday’s budget will have to match some of Donald Trump’s Big Beautiful Bill.
We already know that the fiscal blueprint that Finance Minister François-Philippe Champagne will deliver this week will lean heavily on public spending on infrastructure, housing, defence, and industrial bailouts to bolster an economy whacked by Mr. Trump’s tariffs.
Mr. Carney has spent months selling those things as a deployment of public capital that is necessary to transform the Canadian economy in an uncertain time when private investors are holding onto their cash.
What we don’t know is how far Mr. Champagne’s budget will go on the other side of the ledger. To what extent will he turn to broad corporate tax breaks to create incentives for business to invest? In a budget about investment to transform the economy, there should be a focus on spurring investment from corporate Canada, too.
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In the United States, Mr. Trump’s so-called Big Beautiful Bill loaded up such breaks for corporate America – meaning Canada faces tax competition for investors on top of the tariffs that have already caused auto and furniture plants to close.
You’d think that Mr. Carney – who as governor of the Bank of Canada in 2012 chided companies for sitting on “dead money” rather than deploying it in business activities – would be anxious for his government to take big steps to encourage business investment, too.
But that’s not just an economic question, it’s a political one.
The best way to survive a confidence vote on the budget is to make it something that opposition parties don’t want to campaign against. And if the Liberals back corporate tax cuts, all while telling Canadians that sacrifices have to be made and the civil service must be slashed – well, that just might be enough to revive support for the NDP. It might help the Bloc Québécois, too.
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In the spring election, the red Liberal team emphasized public funds and initiatives to transform the economy while the blue team of Pierre Poilievre’s Conservatives ran on a platform of tax cuts. Politics will discourage Mr. Champagne from going deep purple.
A straight cut to the corporate tax rate would be one way to send a message to the business world, but it’s also the surest way for Mr. Carney to open himself up to criticism that he sides with the corporate elite – from his left and perhaps the populists on his right.
The Liberal election platform included a promise to conduct a broad tax-reform review but that’s likely to take time and is almost inevitably laden with political risks.
But economist William Robson, the president of the C.D. Howe Institute, said Canada still needs to act to boost the disturbingly weak levels of business investment that are causing declines in productivity and standards of living. He wants to see a message sent in this budget, to encourage businesses to invest money in Canada in the near term.
“I do think it would be good to have something that is a real eyebrow-raiser that will cause businesses to perk up,” Mr. Robson said. That could be a general investment tax credit that applies to any Canadian investment, encouraging them to put money in their business now.
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Mr. Trump’s Big Beautiful Bill extended his 2017 tax cuts and included new provisions allowing companies to write off capital investments in a year. Companies deciding whether to invest in Canada or the U.S. have to worry about U.S. tariffs, and now Canada’s tax system is losing its edge, Mr. Robson said.
Past Liberal budgets have instituted accelerated depreciation for machinery and equipment and investment tax credits for some industries, especially green technologies.
Mr. Champagne will almost certainly expand such measures. But will he turn them into across-the-board, economy-wide incentives to invest in Canada?
It makes obvious sense for a budget that is supposed to be, on a large scale, public investment in the Canadian economy – an economic transformation in a hurry – to include major incentives for business to expand investment, too.
Such measures would be in any budget that is as transformational as the one Mr. Carney has promised. Unless the politics get in the way.