Prime Minister Mark Carney’s first federal budget, unveiled earlier this week, signals a sweeping shift toward investment-led growth, with implications for capital markets, venture financing, and resource development. The $550 billion spending plan for 2025–26, paired with a projected $78.3 billion deficit, sets the stage for what the government calls “generational investments” in infrastructure, housing, defence, and productivity. While the fiscal outlook raises concerns about inflation and interest rates, the budget introduces measures that could reshape Canada’s investment landscape for years to come.
This article is a journalistic opinion piece that has been written based on independent research. It is intended to inform investors and should not be taken as a recommendation or financial advice.
Key fiscal metrics
- Annual spending: $550 billion in 2025–26, rising to $640 billion by 2030.
- Deficit: $78.3 billion this year, narrowing to $57 billion by 2029–30.
- Debt-to-GDP: 42.4 per cent for 2025–26, with a declining trajectory over the forecast horizon.
- Savings plan: $60 billion in expenditure reductions over five years, including cuts to 40,000 public service positions.
Major investment commitments
- Housing: $25 billion over five years, including the Build Canada Homes agency to accelerate construction.
- Defence: $30 billion in capital spending, part of a broader $73 billion defense package to meet NATO targets.
- Infrastructure: $115 billion over five years for nation-building projects, including high-speed rail and Arctic development.
- Productivity and competitiveness: $110 billion over five years, aimed at catalyzing $500 billion in private-sector investment by 2030.
Investor-relevant measures
1. Productivity super-deduction
The headline tax measure allows immediate expensing (100 per cent write-off) for manufacturing and processing buildings acquired after Nov. 4, 2025, and used before 2030. Other incentives include accelerated capital cost allowances for LNG facilities and reinstated deductions for scientific research and experimental development (SR&ED) capital expenditures. These provisions reduce Canada’s marginal effective tax rate to 13.2 per cent, making it the lowest in the G7.
Investor impact:
- Boosts ROI for industrial and tech projects.
- Aligns Canada’s tax competitiveness with U.S. reforms, encouraging near-term capital deployment.
2. Venture capital and private equity
The budget earmarks:
- $1 billion over three years for the Venture and Growth Capital Catalyst Initiative (VGCCI), a fund-of-funds managed by BDC to attract institutional investors.
- $750 million in direct support for early-stage Canadian businesses, with details expected in 2026.
- Plans to loosen capital requirements for insurers and streamline rules for qualified investments in registered plans (RRSP, TFSA, FHSA, etc.).
“The Canadian venture space is sorely lacking in institutional capital. Pension funds and other well-capitalized entities not only provide capital to businesses through equity and debt financing but create liquidity in markets and support of share prices,” Anthony Sandler, CIM, associate portfolio manager with The Barber Group under Research Capital Corp. wrote in a newsletter. “But Canadian institutions are inherently conservative. It will be interesting to see if free money can create the kind of incentives managers need to allocate capital where it best creates innovation, productivity and leads to wealth.”
Investor impact:
- Addresses chronic underfunding in Canada’s venture ecosystem.
- Could create liquidity and valuation support for late-stage private and early public companies.
3. Critical minerals strategy
A new $2 billion critical minerals sovereign fund will provide equity stakes, loan guarantees, and offtake agreements for strategic mining projects. Additionally:
- $371.8 million for the First and Last Mile Fund to strengthen upstream and midstream supply chains.
- Expansion of the Critical Mineral Exploration Tax Credit to 12 new minerals, including tungsten, molybdenum, and rare earths.
Investor impact:
- Positions Canada as a global supplier of EV and battery inputs.
- Creates opportunities in exploration, processing, and related infrastructure.
Other notable changes
- Luxury Tax eliminated on aircraft and vessels — a boost for aviation and marine sectors.
- Underused Housing Tax repealed, easing compliance for real estate investors.
- Streamlined rules for mutual fund trusts and private shares in registered accounts.
- Canadian exploration expenses tightened: PEAs, PFSs, and FSs no longer qualify for flow-through treatment.
The outlook
Economists warn that while these measures aim to “supercharge growth,” the combination of high deficits and aggressive capital spending could push interest rates higher by late 2026. This environment favors savers and fixed-income investors but may dampen business borrowing. Real GDP growth is projected at just over 1 per cent for 2025–26, with hopes of recovery to 2 per cent by 2027.
Bottom line for investors
Budget 2025 is a clear pivot toward capital formation and industrial policy. For investors, the opportunities lie in:
- Tax-advantaged sectors: manufacturing, clean tech, LNG, and SR&ED-heavy industries.
- Critical minerals and resource plays: benefiting from sovereign fund backing and expanded tax credits.
- Venture and growth capital: as institutional participation deepens liquidity in private markets.
However, monitor inflation and rate trends closely — the government’s bet on deficit-financed growth could reshape the cost of capital over the next 24 months.
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