The takeaway from the spring fiscal update? Your answer will have to wait until the fall budget

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Prime Minister Mark Carney and Minister of Finance Francois-Philippe Champagne make their way to the House of Commons before the tabling of the spring economic update on Tuesday.Justin Tang/The Canadian Press

Donald Trump depicted himself as Jesus healing the sick in an AI-generated image the U. S. President posted earlier this month. But with his approval rating underwater, and unpopularity almost certain to cost him control of Congress this fall, not many Americans are imagining Mr. Trump as their messiah.

Prime Minister Mark Carney, in contrast, was anointed as PM, won an election that was lost without him, immaculately conceived a majority by persuading enough Conservative MPs to deny their party and follow him, and continues to ride high in the polls – all on the hope that he is The One.

Onto him has been given the power to heal a sick economy, raise business confidence from the grave, grow mighty investments from a mustard seed, and turn deficit water into investment-grade wine. Or so we hope.

I’m of course agnostic. But like most of us, I can’t help but be hopeful. It’s hard not to be.

Our alleged saviour scores higher on every measure – education, aptitude, experience – than the last PM. He has said a lot of the right things about where the previous government, and our economy, went wrong. He continues to say a lot of inspiring words about how he intends to set things right.

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However, a year into the self-branded “Canada’s New Government,” and after the arrival of the shallow vessel that was Tuesday’s spring economic update, I’m starting to wonder if I need to move from hopeful agnostic to concerned sceptic.

There are two reasons for concern.

The first is that, though Mr. Carney came into office reciting a mantra about Ottawa spending less to invest more, that’s not exactly what he’s been doing. Instead, the government has introduced a number of new programs – from last year’s cut to the lowest tax bracket to this month’s announcement of a temporary suspension of the gas tax – that are not about borrowing to invest in the future. No, they involve borrowing billions of dollars from the future to hand over to today’s voters.

On Monday, Mr. Carney was repeatedly asked by reporters why he wasn’t doing even more of this, and what other goodies to help Canadians with immediate needs would be in the economic update. He appeared nonplussed that the candies he’d handed out earlier were already digested and forgotten.

But as he’s hopefully learning, using bigger deficits to pay for present consumption is a political sugar hit. Nobody’s appetite is sated. If anything, they come to want and expect more.

On the plus side, Ottawa is not in a state of fiscal crisis. Don’t believe those who say the budgetary sky is falling.

The deficit for 2025-26, the fiscal year just ended, was $66.9-billion, or $11.5-billion less than originally forecast. That budget shortfall is equal to 2.1 per cent of gross domestic product. That is higher than it should be – particularly with so much spending devoted to subsidizing the “affordability agenda” – but it’s lower than those of most of our peer countries.

Our debt-to-GDP ratio is rising, though from a relatively low level. In fiscal terms, Canada is the G7’s least-dirty dirty shirt.

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But saying that something isn’t a crisis is not the same as saying it isn’t a problem. Last year’s deficit came in lower than expected (but higher than it should have been) mostly because the economy proved more resilient than expected, and tax revenues exceeded expectations. This has not been a story of spending restraint, or spending diverted to investment.

Maybe that’s coming in Act II. It will almost certainly be needed if Ottawa is going to simultaneously pay for much bigger defence budgets and large new public investments.

Which brings me to my second reason for concern.

As I wrote on Monday, Mr. Carney is focused, as he should be, on Canada’s business investment deficit. For the first time since the Great Depression, the last decade saw the level of business investment per worker – money going to plant, equipment, information technology and so on – decline.

Giving workers fewer tools tends to make the economy less productive. That’s a big part of the reason why Canada’s per-capita GDP growth from 2015 to 2024 was also at its lowest level since the Great Depression.

What remains unclear is whether this story can be turned around, and to what extent a sustained increase in investment in Canada would deliver a bump in long-term economic growth. Also: How much public money will be needed to goose private investment? And how will any public dollars be managed so as to produce returns instead of boondoggles?

The Canada Strong Fund, a pot of money Mr. Carney announced Monday as the country’s first national sovereign wealth fund, may turn out to be a brilliant idea that transforms government subsidies into return-seeking investments, drawing in huge new pools of private money. Or the CSF could be just one more acronym added to the pile of questionable agencies with economic growth agendas, fat wallets and political imperatives spawned under previous governments. Beats me.

But I live in hope. There’s enormous possibility in this government. There’s also a lot of possibility for disappointment.

Mr. Carney is attempting to do something exceptionally difficult. Not only is he trying to reorient Canada’s economy and boost Canada’s growth trajectory, and not only is he doing it while the country is under threat from our most important trading partner, he’s trying to make sure that Canadians get an instant payoff from a transition that has yet to happen, and that is not guaranteed to happen.

He thinks he can have it all. He might be right. But eventually, something may have to give. Eventually, a hard economic turn may only be possible by asking Canadians to swallow some hard choices.