Carney’s Spring Update Braces Canada for US Trade Fight

Carney’s Spring Update Braces Canada for US Trade Fight

Against the backdrop of today’s Spring Economic Update, the Carney government has taken a more combative tone with the Trump administration as the timeline to CUSMA renegotiation approaches.

With few reasons for optimism as rhetoric from the American side ramps up, the possibility of a worst-case scenario must be contemplated. Canadian negotiators may be willing to wait out the Americans until the US midterm elections, when Trump might be considerably weaker if his political standing continues to plummet. But the uncertainty would batter Canadian markets and economic sentiment for months.

The Carney government will hope that their new majority in the House of Commons can insulate them from the political shocks that would also accompany a full-blown trade war with the US.

Today’s Spring Economic Update paints a more upbeat picture of Canada’s finances and economy, with the major new spending item being committed to the skilled trades. Here’s what we thought was most relevant to our clients:

Fiscal and economic top line

• Factoring in economic and fiscal developments, measures in the Spring Economic Update, and policy actions since Budget 2025, the 2025-26 deficit is now projected to be $66.9 billion—$11.5 billion lower than in Budget 2025— or 2.1 per cent of GDP.
• The deficit is expected to decline to $53.2 billion, or 1.4 per cent of GDP by 2030-31.
• In addition, the federal debt-to-GDP ratio is expected to remain relatively stable from 2027-28 to 2030-31, and more than a full percentage point lower than projected in Budget 2025 (Canada’s net debt-to-GDP ratio stands at 10.2 per cent).
• Direct program expenses are $14.2 billion lower in 2025-26.
• Since the start of 2025, Canada has added nearly three times as many jobs per capita (3.4 per 1,000 of population) as the U.S. (1.2 per 1,000). The majority of those jobs have been in the private sector. The unemployment rate peaked in September 2025 at 7.1 per cent, before falling to 6.7 per cent as of March. Wage growth has now outpaced inflation for more than three consecutive years, supporting continued gains in real incomes.
• Growth swung from a 2.4 per cent (annualized) gain in the third quarter to a 0.6 per cent contraction in the fourth. The fourth-quarter decline masks firmer domestic momentum, supported by solid consumer spending and renewed business investment.
• Canada has the 2^nd fastest growing economy in the G7 and the highest direct investment inflows per capital – nearly double the US.

Affordability measures

The government’s economic topline is bolstered by stronger than expected tax receipts, aided in part by the increase in oil prices linked to the US-Iran conflict.  The Carney government has already announced a federal fuel excise tax holiday through the summer.

The Liberals have also partnered with the Ontario government to offer a HST holiday on all new home purchases, to boost a flagging construction sector this year, as part of $1.7 billion for province and territories to increase housing supply including reducing development charges.

On the housing front, the government is accelerating over $7 billion in low-cost loans via the Canada Mortgage and Housing Corporation to speed up the construction of up to 16,500 new rental homes.

Mortgage insurance is included in the update, with plans to:

• Amend mortgage insurance rules to permit private mortgage insurers to offer multi-unit mortgage loan insurance on five- to eight-unit residential properties to promote competition and offer lenders more choice; and
• Amend mortgage insurance rules to increase flexibilities for mortgage insurers to offer products to borrowers building new three- and four-unit housing, helping unlock financing for “missing middle” homes such as triplexes and fourplexes—an important step toward increasing housing supply and addressing Canada’s housing shortage.

The Spring update also provided better support to Indigenous housing providers by reallocating $2.8 billion over five years, starting in 2026-27, to Build Canada Homes, Crown-Indigenous Relations and Northern Affairs Canada, Indigenous Services Canada and Housing, Infrastructure and Communities Canada.

With the unanimous support of provinces and territories, the government is reducing the contribution rate of the base Canada Pension Plan, from 9.9 per cent to 9.5 per cent, effective January 1, 2027. This will provide all Canadian workers with savings on their paycheck and reflects the actuarial health of the CPP.

Major projects

Yesterday, Carney announced a $25 billion “Canada Strong” sovereign wealth fund to take ownership stakes in nation-building projects within Canada. Interestingly, the impact on the federal bottom line is expected to be negligible, as these ownership stakes would be recorded as assets and not expenditures. The real goal of the new fund is to crowd in capital from other sources – including Canadian pension funds and foreign investors – by sharing the risk with the Government of Canada’s backing.

The Canada Strong Fund will operate at arms-length from government. The government will create a new Crown corporation, and its work will be guided by a CEO and a qualified independent board of directors.

The government also announced two changes to major project incentives:

• The refundable Carbon Capture, Utilization, and Storage (CCUS) investment tax credit will now allow enhanced oil recovery to be made an eligible use for the purposes of the CCUS tax credit.
• Budget 2025 proposed to reinstate the accelerated capital cost allowances (CCAs) for eligible LNG equipment and related buildings, but only for low-carbon LNG facilities, while today’s update includes the implementation details for this measure.

Finally, the update notes that the Government of Canada will soon release a Nuclear Energy Strategy to provide a clear and coordinated federal perspective on the sector’s future development.

Auto Sector

The government provided the fiscal framework for the Auto sector strategy announced in February 2026, including $2.3 billion for the new EV Affordability Program, and $118 million over five years to for “Extending Support for Safety and Cybersecurity in Connected and Automated Vehicles.”

Training

Carney has also signalled the need for a new program to attract young Canadians into the skilled trades, to fill the jobs expected to be created by new housing, infrastructure and defense projects.  The government is launching Team Canada Strong to recruit, train, and hire 80,000 to 100,000 new Red Seal skilled trades workers by 2030-31:

• $2 billion over five years, and $262 million ongoing, to help young people start working in the skilled trades through paid, job-ready placements that lead directly into registered apprenticeships.
• The Build Canada Apprenticeship Service, providing wage subsidies of up to $10,000 per apprentice to support employers, particularly small and medium-sized businesses, to hire, train, and retain apprentices, including help matching workers to jobs.
• Enhanced income supports during training, including a $400 per week Apprenticeship Training Grant while apprentices are in mandatory in-class technical training, so more can complete their training.
• Increase apprenticeship completion rates by providing a one-time $5,000 bonus to apprentices obtaining certification in a Red Seal trade, and providing income supports for those between training and work.

The update provides $250 million over five years, starting in 2026-27, and $45 million ongoing, to expand Canada’s skilled trades training capacity through the CAF:

• The government will expand hands-on training through the Cadets and Junior Canadian Rangers programs, including enhanced summer experiences and clearer connections to Reserve-based trades pathways
• Introduce a “Reserve Trades Experience Pilot Program”: the government will pilot a new CAF pathway to attract Canadians into the Primary Reserve, offering fully funded trades training alongside paid, part-time experience on critical infrastructure and resilience projects. Participants will commit to a period of Reserve service in exchange for subsidized education, strengthening both Canada’s skilled workforce and defence capacity.

Driving Productivity and Affordability Through Competition

The government announced its intention to engage with federally regulated financial institutions to better understand considerations related to their development and potential use of stablecoins, and other tokenised assets and whether additional regulatory clarity is needed.

The government intends to implement changes to provide more flexibility for federally regulated financial institutions to make investments that support innovative financial services and benefit the economy as a whole.

To support these regulations, the government proposes to amend the Bank Act to ensure the review for national security risks of investments in Canadian businesses by foreign banks and their affiliates is consistent with how other foreign investments in Canada are assessed.

Supporting the new Financial Crimes Agency

Yesterday, the government introduced legislation to establish the Financial Crimes Agency, to investigate serious and complex financial crimes, such as money laundering, serious fraud, and major capital market crimes, and to recover the proceeds of crime.

To stand up this new lead enforcement agency, the government proposes to provide:

• $352.7 million over five years starting in 2026-27, with $57.8 million in remaining amortisation, and $82.1 million ongoing to the Financial Crimes Agency;
• $46.2 million over five years and $11.5 million ongoing to the Public Prosecution Service of Canada; and
• $19.6 million over five years and $1.5 million ongoing to the Department of Finance Canada.

The government also announced its intention for the Minister of Justice to “explore new criminal justice reforms to support the investigation and prosecution of complex financial crimes.”

Protecting Money Services Businesses From Illicit Activity

To support FINTRAC’s efforts and protect Canadians from these crimes, the Spring Economic Update 2026 proposes to crack down on the criminal abuse of Money Service Businesses (such as foreign exchange services, crowd funders, payday loan operators and crypto exchanges) by:

• Introducing new Ministerial Directive powers to safeguard national security and the integrity of the financial system;
• Expanding FINTRAC’s ability to refuse or revoke registration of Money Service Businesses (MSB);
• Increasing the number of criminal record checks for MSBs; and
• Enhancing FINTRAC’s understanding of MSB risks by ensuring it has accurate and up-to-date information regarding the commencement of business and services provided by MSBs.

To protect Canadians by shutting down a primary method for scammers to defraud victims and for criminals to place their cash proceeds of crime, the Spring Economic Update 2026 proposes to ban crypto ATMs.

Community Safety

To help address rising hate-related crimes, the government proposes to provide $75 million over five years, starting in 2026-27, to Public Safety Canada for the Canada Community Security Program. This additional funding will allow the program to continue to help eligible organisations implement physical security enhancements and foster safer, more inclusive communities.

Empowering Indigenous Communities

To ensure First Nations, Inuit, and Métis individuals and communities have access to opportunities to grow and reach their full potential, the government proposes to provide the following funding to Indigenous Services Canada:

• $601 million in 2026-27 to support high-quality, culturally relevant elementary and secondary education on reserve that meets the needs of students so that First Nations youth can participate fully in Canada’s skilled workforce; and
• $700 million over six years, starting in 2025-26, to continue to support Indigenous communities to implement their own solutions to protect children and families by exercising their jurisdiction under An Act respecting First Nations, Inuit and Métis children, youth and families.

To ensure high-quality and culturally relevant health care that responds to the distinct needs of Indigenous individuals, families, and communities, the government is allocating $794 million in 2026-27 to support the Non-Insured Health Benefits Program, which provides First Nations and Inuit with coverage for a range of health products and services such as medical travel, pharmaceuticals, and mental health counselling.

Canadian Journalism Labour Tax Credit

The government announced its intention to seek the views of Canadians and stakeholders on extending the Canadian Journalism Labour Tax Credit to audio and audiovisual news production – expanding the credit to radio and TV news.

Modern Tax Rules for Charities

With advances in technology and digitisation, the government will undertake an exercise to modernise the framework for the charitable sector in 2026-27. As a first step, the government will undertake a consultation with key stakeholders and relevant agencies for them to provide feedback and align with best practices adopted by other G7 countries.

International Development and Climate Finance

With respect to climate policy, the government is casting its focus abroad.  The update proposes to provide $3.0 billion over five years on a cash basis, starting in 2026-27, to Global Affairs Canada, and $167.9 million over five years on a cash basis, starting in 2026 27, to Environment and Climate Change Canada to continue delivering climate-related supports to vulnerable countries.

In addition, the Spring Economic Update 2026 proposes to provide $2.0 billion in paid-in capital for FinDev Canada, as well as $732 million over three years on a cash basis, starting in 2028-29, to expand FinDev Canada’s concessional finance facility. These measures will help to mobilise private capital at scale into climate-related businesses and projects in emerging markets and developing economies, including mobilising over $3 in private capital for every $1 of public investment through FinDev’s concessional finance facility.

Political upshot

A mere month ago, before the Liberals clinched their majority via a combination of high-profile floor crossings and by-election victories, a very different spring update would have transpired, as it would have been dependent on opposition support to pass.

With the Carney Liberals riding high in the polls and enjoying their new majority, they are instead showing their true colours with a fiscally prudent statement that improves on the Fall 2025 budgetary outlook and spends sparingly on a few key areas, including training, anti-fraud measures, Indigenous health and education, and international climate finance.

What stands out is the Carney government’s preservation of their “fiscal firepower” – allowing the government ample room to act if the biggest threat to Canada’s economy – our trade negotiations with the US – go off the rails this summer.

As stakeholders prepare their pre-budget submissions for the Fall Budget, it is worth considering how your proposals boost Canada’s resilience and sovereignty during what could be a challenging negotiation.