Federal Spring Economic Update 2026: Sticking to the Plan
The spring economic update showed that the federal government is doubling down on its plan to build the nation, with most policy measures focused on boosting private investment.
- A higher than anticipated revenue was met with higher spending, but near-term deficit projections were still lowered.
- The government’s finances remain on stable footing despite the steep deficits, but fiscal guard rails continue to slip – with deficits forecasted to be above 1.4 per cent of GDP over the next six years.
- Nearly $7 billion allocated to boosting trade skills is welcome news, and a labour plan to match the ambition of the building plan will be key for its success.
- Other measures to help households, including the temporary suspension of the fuel tax, the previously announced Canada Groceries and Essentials Benefit as well as the reduced CPP contribution rate will all be welcome news for Canadian households.
- Details on the new sovereign wealth fund were limited, but it will come with initial funding of $25 billion and is meant to give major projects an alternative source of funding.
- Overall, the spring update felt like a continuation of the budget tabled in the fall, with only incremental policy changes and an overall better deficit picture. The fiscal update, and the fall budget, will ultimately be judged on whether its ambitious goals are met.
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The federal government’s spring fiscal update reinforces both its commitment to its ambitious growth agenda set out in the budget last fall, while also signaling little appetite to go much further. While the provincial budget season brought about a deterioration in fiscal projections across the country, the federal government has managed to improve its fiscal position, albeit slightly. Ultimately, both this update and the fall budget will be judged on whether they can deliver sustained long‑term growth, particularly given the persistence of sizeable projected deficits.
The budget duly notes that Canada’s fiscal position remains strong when compared to peer countries, but many peers are themselves in precarious fiscal positions. For Canada, sustained but gradually shrinking deficits and a declining net debt-to-GDP ratio show some signs of fiscal guard rails. Still, those guardrails appear looser than we hoped for.
Our biggest concern in the broader fiscal outlook remains the persistence of large deficits. The long-term deficit picture is largely unchanged from the fall budget. The spring update adds in a deficit projection for fiscal year 2030–31, at a still elevated 53.2 billion (1.4 per cent of GDP). The net result is that Canada’s debt-to-GDP ratio rises from 40.7 per cent in fiscal year 2024–25 to 41.6 per cent in fiscal year 2030–31. With six consecutive years of deficits projected to be at or above 1.4 per cent of GDP, greater emphasis is needed on eventual deficit reduction. As noted in the budget, under long-term economic growth assumptions of 3.5 per cent on average beyond 2030 used in the spring outlook, the nation’s debt-to-GDP ratio does not return to pre-pandemic levels until the 2050’s.
The spring update also presents two scenarios, both of which seem prudent. In the first, oil prices remain elevated due to the conflict in the Middle East lasting longer than anticipated in March. Today, that scenario seems more plausible than it does unlikely. Given Canada’s status as a net energy exporter, the overall impact on the economy is somewhat limited, with federal deficits being roughly $3.5 billion higher over much of the horizon. In the second scenario, heightened global energy uncertainty draws investment toward Canada, boosting both GDP and the fiscal outlook. Taken together, these scenarios show that even amid sustained energy-market volatility, Canada’s fiscal position can remain largely intact, a view we agree with.
Overall, the latest spring update feels like the next step in a broader policy agenda aimed at building Canada, with a focus on labour challenges and the creation of new mechanisms to allocate capital to private sector investment. It’s good news that the deficit trajectory is largely unchanged, given the steep deficits outlined in the budget. Taken together, the broader policy, in both the budget and the spring update, are a gamble on building long-term growth for Canada. If successful, the deficits will be worth it. If unsuccessful, Canada will be less able to tout its fiscal position in future budgets.
Doubling Down on Getting Things Built
While the budget tabled last fall clearly emphasized the federal government’s intention to get things built, today’s spring update furthered those ambitions with a few pieces of policy intended to help the country along that path.
In our analysis of the budget, we noted that labour and skill shortages remain a key obstacle to getting projects built. The spring update announced the Team Canada Strong program intended to facilitate the training of skilled trades workers. The update itself estimates Canada will need 1.4 million additional workers by 2033, while the program aims to add only 80,000 to 100,000 workers. While this is a step in the right direction, it falls well short of what is needed to meet its ambitious target. Initiatives to train more young workers and create new pathways into the trades—including joint military–trades training—are positive and help move the needle, but the labour ambition does not yet match the scale of the investment plan.
In all, the various programs intending to support Canadian workers, especially youth and those entering the trades, comes in at just short of $7 billion over the next six fiscal years.
Supporting Canadians Through Volatile Costs
The other area of new spending that was prominent throughout the spring update is a set of programs aimed at helping Canadian households manage the higher, and more volatile, costs arising from a fragmented global situation.
The most prominent program is the previously announced Canada Groceries and Essential Benefit, which is an enhancement to the GST rebate. The program is expected to cost nearly $11.7 billion over the next six fiscal years and will help lower-income households.
The government also updated its outlook based on the announcement of the fuel tax suspensions from May to September of this year. The federal government estimates the suspension of this program to cost $2.4 billion this fiscal year and will save households 10 cents per litre on gasoline through Labour Day. This will help households who are feeling the pressure at the pumps and ease overall inflation.
Finally, the spring update reduced contributions to the Canada Pension Plan (CPP) on the basis that Canada’s pension plan is fully funded. This change is expected to save an average of $133 for a worker earning $70,000 per year, with equivalent savings for their employer.
Overall, the spring update places additional emphasis on helping households better manage cost uncertainty that has persisted since the pandemic. These measures will naturally stimulate some economic growth, and will be welcome news, especially for lower income households. While the measures announced are modest overall relative to the broader spending agenda, they continue a trend of governments stepping in to support households during successive crises—a policy approach visible across all levels of government and one that has contributed to rising public debt in Canada.
Helping Canadians Get in a Home
Government policy for several years now has focused on getting homes built, and recent policy action has likely helped move the needle just slightly. The recent announcement of eliminating the GST on new homes for first-time home buyers will help households move into a new build and support builders in getting them built.
On top of the removal of GST, the latest changes to development charges in Ontario should help profitability of builders and is another positive move at a time when Canada’s population growth is easing, which could help Canada’s housing market re-align and should improve affordability for households more broadly.
But like the ambitious investment plan, the biggest challenges faced in Canada stem from the ability to build homes, and the labour requirements to make that happen. While some of the skilled trades policies will help with these constraints, without a more sustained labour plan, Canada’s home building is likely to remain below required levels, especially as private non-residential investment picks up and adds to capacity pressures in the construction sector.
A Sovereign Wealth Fund to Share in Major Project Costs and Benefits
Another piece of new policy is the creation of a new sovereign wealth fund to help finance new major projects.
The details in the spring update are scant, but the fund is intended to be a vehicle for Canadians, and their government, to help fund capital projects. The fund will start with an initial seed funding of $25 billion by the federal government over three years. Beyond that, Canadians can invest in the fund, which is meant to bring strong returns to investors, including through a retail product.
Most traditional sovereign wealth funds are financed through fiscal surpluses or dedicated windfall revenues, though this fund seemingly acts like another government bond product with a specific investment focus on infrastructure. With the government’s ultimate goal of attracting more private investment, the success of the fund will still require private market participants to be interested in the projects more broadly. While the fund may help reduce the risk for some major projects, especially those that could face delays behind government approval processes, in order for the fund to reach its desired goal of providing market-rate returns, the focus would need to be on economically viable projects that the private sector would still be interested in. This may challenge uptake more broadly.
Re-Focusing Canada’s Electric Vehicle and Automotive Policy
The new automotive strategy also focused prominently in yesterday’s update. Announced in February, the new EV policy is meant to help boost the prospect of Canada’s auto sector as it faces the crosshairs of U.S. trade policy.
The policy is set to allocate $6.9 billion over six years. Three billion of that is allocated to the strategic response fund with the intention of helping the auto sector adapt and remain competitive in response to U.S. trade policy. On top of that, the government has realized that Canada’s abundant clean energy provides broader advantages to EV production, and has implemented the $2.3 billion EV affordability program, with the intention of making EVs more affordable. On top of that, another $1.5 billion is allocated to help build charging infrastructure to support EV uptake.
The policy is a refocused version of previous policies that intend to increase EV uptake in Canada. Instead of focusing on mandates, these new policies focus on building electric vehicles in Canada for a Canadian market that makes heavy use of them through incentives. Given high gasoline prices today, and headwinds that could continue to add volatility to oil markets for the foreseeable future, these policies are rightly bringing transportation costs more into the realm of Canadian policy and procurement through our reliable and strong electricity infrastructure.
Incremental Policy that Sticks to the Plan
Overall, the spring update is a positive development for the federal government, given the reality of already announced steep deficits. The federal government kept to its broad plan set out in the fall but used its revenue windfall to help announce several new measures. Key areas include skills training, home building, affordability, and climate policy through new EV incentives and conservation policies. While the government’s broader plans will always be assessed under the backdrop of their grand ambitions, it is a positive sign to see a federal fiscal plan that does more than simply downgrade previous forecasts.
The Provincial Fiscal Outlook provides an independent five‑year forecast of each province’s finances, offering an objective evaluation of government budget projections and the economic trends and risk factors that could challenge them.
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