TORONTO — As the Liberal Party appears poised to form a minority government following Monday's election, economists say the focus now shifts toward Prime Minister Mark Carney's spending promises amid the trade war with the United States.
The Liberals were leading or elected in 168 seats when the counting was paused early Tuesday morning, four short of a majority.
U.S. President Donald Trump loomed large over the campaign with his tariff threats and calls for Canada to become a U.S. state. Carney is expected to meet with Trump soon with plans to begin talks on a new trade and security pact quickly.
CIBC chief economist Avery Shenfeld said in a post-election note that budget deficits "look likely to head higher in the near term," adding that is typical when Canada experiences an economic shock and governments lean on fiscal stimulus.
"Deficits are likely to somewhat exceed what the Liberals suggested during the campaign, while still tracking miles below U.S. federal deficits as a share of GDP," he said.
Shenfeld said higher deficits could be in the cards especially with a minority Parliament looking likely, as votes continue being tallied.
"Gaining support in Parliament from either the NDP or the Bloc could mean allocating additional funds towards those parties' priorities, including health care for the NDP, and items of importance for the Bloc (health care, other transfers, support for the metals sector)," he said.
The Liberals' election platform pledged nearly $130 billion in new spending initiatives for priorities such as infrastructure building, defence spending, housing affordability, internal trade and economic development and resource project development, said TD chief economist Beata Caranci.
"Despite what seems like a scattershot of policies, the central theme is to pivot Canada towards domestic economic resilience, after relying on a deepening U.S. relationship for 80 years," she said in a note.
"This suggests a more active role for government in both funding and building than in the past."
While the Liberals and Conservatives had "significant alignment in platform objectives to improve Canadian competitiveness," Caranci said it's historically unusual for the two parties to vote together in Parliament.
That means the big question is "Who will partner with the new Liberal government to pass legislation?" she said, especially when it comes to potential trade-related bills influenced by renewed negotiations with the Trump administration.
"On the campaign trail, parties were united in the fight against American politics to weaken the Canadian economy ... Now the rubber hits the road on collaboration and negotiations, with Liberals caught between the demands of the U.S. administration and those of domestic politics."
Shenfeld said Liberal campaign promises that could affect the fiscal balance include dropping the consumer carbon tax while retaining a reformed version for large industrial emitters, eliminating GST on homes under $1 million for first-time purchasers, and cutting the tax rate by one percentage point for those in the lowest federal income tax bracket.
Canadian Federation of Independent Business president Dan Kelly said small business confidence is near record lows and the CFIB is forecasting an extremely difficult second quarter for the Canadian economy.
"Now that we have a degree of political clarity, government needs to turn its attention to reducing taxes, cutting red tape and providing much-needed economic certainty," Kelly said in a news release Tuesday.
"We urgently need measures that would incentivize investment and help small businesses diversify their markets and suppliers."
Kelly said such measures should include directing money collected through counter-tariffs to small businesses, formally eliminating the consumer carbon tax via legislation and removing internal trade barriers across the provinces.
The United Steelworkers union urged the government to prioritize workers across the country who "are looking for action to protect and create good union jobs, rebuild our industrial base and ensure fairness and security for working people."
This report by The Canadian Press was first published April 29, 2025.
Sammy Hudes, The Canadian Press
