Carney Spent Oil Windfall on Tax Write-off, Budget Watchdog Says

Canada’s budget watchdog says new federal measures, including a major tax incentive for businesses, have more than offset a surge in revenues driven largely by higher energy prices.

The parliamentary budget officer’s fiscal and economic outlook published Tuesday shows federal fiscal room has increased by C$37.4 billion ($26.6 billion) over 2026-27 to 2030-31 compared with the spring budget update. The PBO estimates higher energy prices will boost revenues by C$11.4 billion over the next three years.

Meanwhile, measures announced since then total C$52.6 billion over the same period, more than offsetting the additional fiscal room.

The largest new measure is the federal government’s expanded tax incentive, dubbed the “productivity mega deduction,” which will cost C$36 billion over five years. Prime Minister Mark Carney unveiled the benefit — which will allow businesses to immediately write off certain capital expenses and accelerate deductions for others — as part of his pitch to the world’s top business leaders to invest in Canada during the country’s first investment summit last month.

“Our view is that the productivity mega deduction isn’t going to come anywhere close to replacing, at least over the next five years, the lost tax revenue that the federal government is going to experience as a result of this decision,” Randall Bartlett, Desjardins Group’s deputy chief economist, said in an interview.

“That said, over the very long term, we think it is something that is going to boost Canadian real GDP, particularly in the event that we do get some normalization in trade relations with the US.”

In the report, the PBO also said the deficit-to-GDP ratio isn’t likely to decline every year in coming years, suggesting the federal government will likely miss one of its key fiscal targets.

“We project the deficit-to-GDP ratio at 1.8 per cent in 2026‑27. The ratio rises to 2.0 per cent in 2027‑28 and then trends down to reach 1.7 per cent in 2030‑31. Absent new measures since June, the ratio would have declined in each year,” the watchdog said.