Carney’s budget a ‘significant change:’ BoC governor

Tiff Macklem, Governor of the Bank of Canada, holds a press conference at the Bank of Canada in Ottawa on Wednesday, Oct. 29, 2025. THE CANADIAN PRESS/Sean Kilpatrick

Canada’s top banker says he’s hopeful the new Liberal budget will encourage business investment and stimulate the economy.

“I think there is a significant change in this budget,” Bank of Canada governor Tiff Macklem told senators on the Senate Committee on Banking, Commerce and the Economy on Thursday. “The government is very clearly reducing their operating expenditures, putting more of their spending towards investment, and that’s both public investment and efforts to catalyze private investment.”

Released on Tuesday, the budget includes $141 billion dollars in new spending, offset by an estimated $51.2 billion in savings, amounting to a total net new spend of $89.7 billion dollars.

It also commits to spending $280 billion over five years on capital investments in new infrastructure, productivity, and competitiveness measures, defence and security, and housing. As a result, the federal deficit is projected to be about $78.3 billion dollars in 2025-2026, dropping to $56.6 billion in 2029-2030. The operating budget, meanwhile, is expected to show a $1.7 billion surplus in 2028-2029.

• Budget 2025: Big capital spending, deficit $78.3 billion

While Macklem largely refrained from commenting on specific measures in the budget, he said the document overall offers a similar analysis to the central bank’s diagnosis of what’s been holding the Canadian economy back.

“There’s been a lack of business investment. There’s been, we’ve got relatively high hurdle of regulation,” he said. “If we want to grow the economy more, we need more investment. We need to improve our productivity. We need to improve our competitiveness.”

The productivity and competitiveness portion of the 406-page budget includes $110 billion in spending towards emerging technology support for sectors such as artificial intelligence, quantum, and electric vehicles; regional economic development initiatives; and the unveiling of a new “productivity super deduction.”

Asked about the Budget’s proposed “productivity super-deduction” and it’s potential impact on inflation, Macklem said it should spur investment by reducing the cost for business. Its impact on the economy, he said, will depend on how well it is received and used by companies in the private sector.

“There is more to an investment than tax,” he said. “Accelerated deduction will increase that expectation of profit and maybe make that investment come sooner but it’s not the only thing.”

Trade tensions hurting the economy

In its latest Monetary Policy Report, the Bank of Canada found the trade conflict led to a sharp rise in uncertainty during the first half of the year that contributed to a reduction in GDP, a drop in exports and business investment, and a rise in unemployment.

Compared to its January report, the central bank estimated the trade conflict with the U.S. would push economic growth down 1.5 per cent by the end of 2026, reducing GDP by roughly $40 billion.

• Bank of Canada cuts key interest rate to 2.25%

Macklem says the bank believes the trading relationship with the United States has been permanently altered and that tariffs will be in place for some time.

“I think we need to be realistic,” Macklem said. “I don’t think this U.S. administration is going to wake up and completely change their colours. They’ve demonstrated they like a certain amount of unpredictability.”

As long as that uncertainty and unpredictability exists, Macklem says businesses will be hesitant to make major investments and go on hiring sprees to grow their companies.

“You know, businesses are, are going to have a hard time taking big investment decisions,” he said. “The budget is certainly, is leaning into investment in a big way. That’s going to help.”

Another big factor causing uncertainty, Macklem told the committee, is the CUSMA renewal process that’s set to begin 2026. If a “good deal” is reached and that uncertainty is removed, Macklem told the committee he expects business investment will pick up in Canada because businesses have been holding back.

“The U.S. trade policy is extremely unpredictable, even though it would be in both countries best interest to renew that agreement… We can’t rule out that that won’t happen,” Macklem said.

Asked whether the budget’s incentives for business investment in areas such as artificial intelligence could help, Macklem said that depends whether companies choose to use it.

“Hopefully the budget encourages businesses, adds a bit of juice, provides a bit more certainty, the tax provisions increase the returns and so, encourages that boldness but we will see what the uptake is.”

With files from CTV News’ Rachel Aiello