Is There Enough Federal Fiscal Firepower to Support Canadians Impacted by Tariffs?

Since Donald Trump was re-elected President of the United States in November 2024, the threat of renewed tariffs has been top of mind for Canadians. It has raised the question: is there enough federal fiscal firepower to support Canadians impacted by tariffs?

We think the answer is yes. Central government net debt in Canada (which excludes CPP and QPP) is in the same league as that of other best-in-class advanced economies such as Germany, Australia and New Zealand, and well below debt levels in the US and elsewhere in the G7. Federal deficits are also projected to be lower in the coming years, again as a share of GDP, than in the US and elsewhere. As such, even in our pessimistic economic and downside fiscal scenarios, the Government of Canada could increase spending by a one-time $100B and still keep the federal debt-to-GDP ratio below its pandemic peak. Fortunately, there are also additional savings to be found, particularly in federal operating expenses tied to personnel.

However, with Parliament prorogued, a Liberal Party of Canada leadership race underway and a federal election on the horizon, there doesn’t seem to be much the Government of Canada can do to respond to a tariff shock in the near term. Until new spending is approved by Parliament, automatic stabilizers and existing programs may need to do much of the heavy lifting. The provinces may also have to shoulder more of the fiscal burden than during the pandemic, at least until Parliament returns.