Mike Colledge and Gregory Jack: Why Carney can get away with big deficits

... for now, anyway.

By: Mike Colledge and Gregory Jack

Prime Minister Mark Carney will soon table his first budget, and by all accounts, embark on a massive program of spending at the same time that he tries to constrain growth in government and expand Canada’s trade markets beyond the United States. It will be hard, but not impossible, for him to maintain public support while he does so … at least for a while.

We saw the outlines of some of what Carney intends to do announced last week: a $5-billion fund for industries hit by tariffs, more money for the Business Development Bank of Canada, more support for jobs retraining and the agricultural sector. Combined with previously announced boosts to military and defence spending, we are talking many billions, probably tens of billions, in new spending. Throw in Canada’s stagnant growth and all signs point to record deficits continuing as Carney contends with multiple priorities.

Financial institutions and economic analysts have raised concerns about the scale of spending promised in the 2025 Liberal platform. A recent C.D. Howe report even projected a deficit exceeding $90 billion for 2024-2025, driven by new spending commitments on defence and recent tax cuts. The Fraser Institute projects combined deficits of $225 billion over four years based on the Liberals’ 2025 election platform.

Any government's decision to run a large deficit is a calculated risk, one Carney seems ready to take. The experts may be concerned — either about the scale of the spending or the cuts to free up cash for new priorities — but Canadians are likely to give him a pass, at least this time. Over the longer term, though, ongoing deficits are likely to reinforce views that the government is either inefficient or incompetent.

Off the top, only one in four Canadians (23 per cent) say they would support deficit spending as a common practice. Older Canadians who were around during the early 1990s deficit debates and in 1995, when then-finance minister Paul Martin and the Liberal government set Canada on a path to eliminating deficits and lowering government debt, are less likely to hold this view. There is something of a contradiction here: while older Canadians remember the pain of the ’90s, that feeling has been dulled by time. These are the voters most responsible for Carney’s electoral victory, backing his deficit-laden platform of expansion.

Younger Canadians, those 18 to 24, were less impressed by Carney, but are more than twice as likely as Canadians over the age of 64 to tolerate long-term deficits. They don’t remember the last time this happened and, in any case, are demanding relief as they feel their generation falling further and further behind.

Both groups want action, now. For that reason, a majority (57 per cent) say they would support deficit spending for a few years given the current economic circumstances. A “temporary” deficit to solve today’s pressing problems seems likely to be an easy political sell.

The intent behind the deficit matters, too. On that measure, 54 per cent say they “would support deficit spending for major infrastructure projects,” rising to 62 per cent among Canadians over 64 years. Infrastructure investments are normally popular, especially when they lead to local projects and improvements. Carney would be well advised to closely link any deficit spending with an announcement of the major projects he plans to fast-track for approval, and to highlight local and national benefits. We can expect to see infrastructure announcements in Alberta and Quebec in particular, and a little something for everyone as the prime minister shores up his national support.

Here is the challenge: while the government can get a pass on the deficit in the short run, a series of government deficits will reinforce current views of government inefficiency. Sixty eight per cent of Canadians already agree that the government would not need deficit spending if it were better managed and more efficient. Seven in ten believe a deficit shouldn’t be necessary to begin with, but at the same time, many of those same people believe one is necessary now.

If this seems incongruous, we’d note this: polls show a general concern about the deficit, but it ranks much lower than more immediate, tangible issues; the things right in front of voters’ eyes. For many, the primary concerns today are a high cost of living, housing affordability, and health care. There is also concern about our relationship with America and the state of the world. A fall budget that is seen to address any of these areas, especially if sold to the public as strategic investments in a stronger Canada, will likely get a pass.

But long-term deficits will weaken the perception of government competence in the long run. They will also open the door for opposition parties to convey the idea that a more efficient government could deliver the same or better services without plunging the country further into debt. This narrative is particularly potent because it doesn't require voters to oppose popular programs, only to believe that those programs could be managed better. Carney himself has invited that argument with promises to cut the public service through efficiencies, effectively arguing that the cuts will be painless for Canadians themselves.

The next budget will be a political gamble. Prime Minister Carney could well leverage it for a short-term electoral victory in 2026 or 2027 by framing it as a necessary response to the immediate needs of a struggling country. However, this would simultaneously validate and deepen a widespread public perception that the government is fundamentally inefficient and a poor manager of the nation's finances.

As a former central banker and a non-politician whose credentials were built on the perception that he is a strong economic manager, this is a danger Carney will no doubt grasp. Whether that knowledge helps him avoid the temptation of a risky but popular spending surge remains to be seen.

Mike Colledge is president, executive insights and sustainability, with Ipsos Canada. Gregory Jack is senior vice president public affairs Ipsos Canada.

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