Mark Carney's first budget is a sharp departure from previous fiscal plans

OTTAWA — Prime Minister Mark Carney's government is preparing to present its first budget this week—one that will be radically different from previous budgets.

 "This budget is important for a number of reasons that may be unique to this particular situation," said Sahir Khan, vice-president of the Institute for Fiscal Studies and Democracy at the University of Ottawa.

 This budget is the Liberals' first fiscal update in nearly a year and the first summary of Carney's agenda since the party released its election platform in the spring.

 Since then, major Canadian industries have been hit hard by the trade war with the United States. The weakened economy means less revenue for the government.

 Additionally, some tax cuts and significant increases in spending on defense and infrastructure, Ottawa's fiscal situation appears to be under considerable pressure.

 Khan said budgets are important for many reasons that go beyond profits. They show Canadians how the government prioritizes limited resources.

 And the federal budget—like any new spending proposal—is automatically subject to a confidence vote as soon as it's introduced as a bill in the House of Commons.

 This means the budget presents a politically dangerous moment for the minority Liberal government—as losing a vote in the Commons could lead to its downfall.

 "This is probably the biggest political event of the year... because in this case, it also outlines the government's direction for the coming year and beyond," Khan said.

"A lot depends on this... and for Canadians, we're now waiting to see how this government will address our concerns about many of the things that are really important to us and our families."

 The long-awaited budget is coming now because the Liberals decided not to present any fiscal updates around the spring election. Spring is traditionally the season for federal budgets because it aligns them with the start of Ottawa's fiscal calendar.

 But Carney's government says autumn budgets will be the norm going forward. Finance Minister François-Philippe Champagne said last month that autumn budgets give provinces a better understanding of federal policy before their budget cycles and give builders time to better plan for the spring construction season.

 Another major change is Ottawa's new presentation of the annual deficit—the amount added to the government's total debt in a given year.

 While the Liberals say they will still present the government's fiscal position based on traditional standards, this budget will introduce a new practice of dividing the budget into capital and operating streams—a practice also followed in the United Kingdom.

 Anything related to the construction of capital assets will be considered capital expenditure under the budget—mostly infrastructure and homes, but also some non-physical assets like intellectual property. Capital expenditure includes the federal government's own projects, as well as expenditures that encourage capital formation within provinces, industry, or Indigenous communities.

 Anything that is not capital expenditure will be considered operating expenditure—primarily government salaries, transfers, and program expenditures. These are the costs the Liberal Party is examining through an expenditure review process, which aims to achieve overall savings of 15 percent over the next three years.

 Interim Parliamentary Budget Officer Jason Jacques and some other economic observers have argued that the federal government's definition of capital is too broad and will misclassify some operating expenditures as capital.

 The federal government has pledged to balance the operating side of the budget in three years so that, after that, any borrowing will only be spent on capital projects.

Carney has presented this change as part of a plan to "spend less" and "invest more."

 Khan said this change could help the government convince Canadians that it is only borrowing for measures that boost the economy's productive capacity.

 Infrastructure spending can be increased or decreased based on needs in a given year, but operational costs like salaries and transfers to Canadians are harder to control. Khan said borrowing for operational expenses creates debt that is more likely to be passed on to future generations.

Such capital spending and the promise to meet current and future NATO defense spending commitments could further increase Ottawa's deficit this and in coming years.

The autumn economic statement presented late last year—before US President Donald Trump launched a trade war—projected a deficit of $42.2 billion for this fiscal year. The IFSD estimates the deficit this year could be between $75-90 billion, although some other analysts estimate the number could be slightly above or below this broad range.

 The federal Conservatives are urging the Liberals to limit this year's deficit to $42 billion and are accusing the government of "reckless" spending.