Budget 2026 Spending, Tax Cuts Set to Strain Canada's Fiscal Capacity, Desjardins Says

12:42 PM EDT, 10/26/2026 (MT Newswires) -- Canada's fiscal flexibility is shrinking ahead of next week's Budget 2026, as the federal government plans more than CA$50 billion in additional spending over the next decade, while tax cuts and deductions could total about CA$90 billion, according to Desjardins Economic Studies in a Monday note. Rising spending commitments could complicate Canada's efforts to lower the federal deficit-to-GDP ratio, wrote Desjardins in the note. Although the debt-to-GDP ratio may improve in the short term as nominal gross domestic product rises, partly driven by higher oil prices and inflation, this support is expected to diminish as oil prices return to normal, putting pressure on the longer-term fiscal outlook, said the bank. Canada's government is slated to present the budget on Nov. 5. Canada's debt profile remains broadly compatible with its triple-A sovereign credit rating, but higher interest rates and the prospect of renewed trade friction with the United States are adding to fiscal pressures. With revenues weakening and spending commitments increasing, Canada has less fiscal flexibility to cushion the impact of future economic shocks, added Desjardins. Budget 2026 will need to spell out how announced measures will be funded and their impact on public finances, while demonstrating that Canada can maintain fiscal stability amid potential economic shocks, according to the bank.