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Carney setting the stage for massive deficits this year and beyond

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From the Fraser Institute

By Jake Fuss and Grady Munro

While Prime Minister Carney has promised to fix the rotten fiscal situation he inherited, based on his recent commitments, Canadians shouldn’t hold their breath.

During April’s federal election campaign, the Liberal platform promised a budget deficit of $62.3 billion this year—roughly $20 billion larger than what the Trudeau government projected a few months earlier. The platform included billions of new spending on items such as infrastructure, CBC programming and enhanced benefits for seniors, in addition to planned revenue losses from tax changes on capital gains, personal income and the GST for first-time homebuyers.

Clearly, according to Carney’s plan, it was more of the same Trudeau-era approach—massive spending, large deficits and more debt. Then Canada entered trade negotiations with the Trump administration.

In response to pressure from President Trump, Prime Minister Carney increased defence spending to 2 per cent of the economy (the target for NATO allies) this year and 5 per cent by 2035. And he scrapped the digital services tax that had drawn the ire of many south of the border.

Regardless of the pros or cons of these moves, on aggregate they mean higher spending and more borrowing including for the new additional $9.3 billion in defence spending in 2025/26. Ottawa will also lose an estimated $1.2 billion in digital services tax revenue this year. Add everything up and the deficit for this year will likely eclipse $70.0 billion.

For context, that’s higher than eight of the last 10 deficits the Trudeau government ran (only exceeded by the two COVID years). To his credit, Prime Minister Carney has recognized the budget crunch and asked his cabinet to find “ambitious savings” across departments starting next year. A comprehensive spending review is long overdue and represents a step in the right direction. However, the government is excluding more than half of all program spending including all transfers to individuals (e.g. seniors’ benefits) and the provinces, and military spending. And, according to the Liberal platform, the government already planned to save $28.0 billion over the next three years by amalgamating service delivery, consolidating programs, using artificial intelligence and reducing the use of external consultants. It’s unclear if these projected savings will count towards the review or if the government will instead make additional deep cuts to the budget.

On the campaign trail, Carney tried to placate concerns by promising to balance the operating budget—spending on government salaries and cash transfers to provinces and individuals—within three years. But Canadians should first be skeptical he can achieve this feat and, second, understand that his plan involves borrowing substantial sums of money in a separate capital budget, which includes spending on “anything that builds an asset.”

Promising to balance the operating budget while continuing borrowing elsewhere is like throwing dirt in one hole while digging a crater in another area of the garden. It’ll be a tough hole to climb out of, and Canadians will suffer the consequences. Rising debt usually leads to slower economic growth, higher debt interest costs that leave less money for other programs, and higher taxes for future generations.

Prime Minister Carney inherited a mess from Justin Trudeau, but his fiscal plan appears poised to make the problem much worse. The government won’t table its first official budget until the fall, but Carney’s election platform charted combined deficits of $224.8 billion over the next four years (much higher, incidentally, than projections by the Trudeau government—the highest-spending government in Canadian history). Now, even those huge numbers seem like a pipedream.

Jake Fuss

Director, Fiscal Studies, Fraser Institute

Grady Munro

Grady Munro

Policy Analyst, Fraser Institute

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Artificial Intelligence

Trump signs executive orders to strip AI of woke bias

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Quick Hit:

At an AI summit in Washington on Wednesday, President Donald Trump signed three executive orders aimed at making the U.S. an “AI export powerhouse” while purging federally funded artificial intelligence models of what he called “woke Marxist lunacy.”

Key Details:

  • During remarks at the “Winning the Race” summit, Trump declared: “Once and for all, we are getting rid of woke. Is that OK?” drawing loud applause. He slammed DEI as “toxic ideology” that distorts AI outputs and pledged to eliminate it from all AI tools funded by the federal government.
  • One order requires that federally funded AI models be politically neutral, explicitly banning ideological components such as DEI, critical race theory, and so-called unconscious bias. The move pressures developers seeking government contracts to strip their models of left-leaning programming.
  • The other orders speed up permitting for AI infrastructure and promote U.S. exports of AI tools. Trump said the initiative is essential to counter China’s ambitions in the sector and called on American companies to “put America first” in the global AI race.

Diving Deeper:

President Donald Trump on Wednesday signed three sweeping executive orders focused on reshaping the U.S. approach to artificial intelligence, taking aim at what he described as entrenched liberal bias in the industry and ramping up efforts to dominate the global AI landscape.

Speaking from the “Winning the Race” summit in Washington, Trump mocked left-wing influence in AI, decrying what he called “woke Marxist lunacy” embedded in today’s leading models. “Once and for all, we are getting rid of woke. Is that OK?” he said to a room of industry leaders gathered at the Mellon Auditorium. The crowd responded with loud applause.

One of the executive orders, titled Preventing Woke AI in the Federal Government, directs that any company receiving federal funding for artificial intelligence must develop politically neutral systems that are free from “ideological dogmas such as DEI.” The order explicitly targets concepts like critical race theory, systemic racism, transgenderism, intersectionality, and unconscious bias—labeling them as distortions of factual output.

Trump also blasted the Biden administration for previously mandating “toxic diversity, equity, and inclusion ideology” as the framework for federal AI development. “So you immediately knew that was the end of your development,” he said, drawing laughs from the crowd.

The order emphasizes that the government “should be hesitant to regulate” private-sector AI models but makes clear that public procurement must be grounded in “truthfulness and accuracy” rather than political goals.

Trump also signed a second order aimed at reducing permitting delays for data centers and scaling back environmental rules that could slow construction. These facilities, which consume vast amounts of energy and water, have drawn criticism from environmental groups and resistance from local communities. The order aligns with calls from major tech companies to ease restrictions on building out AI infrastructure.

A third order prioritizes expanding U.S. AI exports and positions America as a global leader in the emerging sector. The moves accompany the rollout of a 24-page “AI action plan” from the White House, designed to replace Biden-era rules and accelerate AI development by cutting “red tape and onerous regulation.”

“Winning this competition will be a test of our capacities unlike anything since the dawn of the space age,” Trump said. “We need U.S. technology companies to be all-in for America. We want you to put America first.”

He even joked about renaming the technology altogether, saying, “I don’t even like the name… It’s not artificial. It’s genius.”

The Trump administration’s directives come as concerns grow on the right over political bias in AI, especially in generative tools like chatbots and image generators. Elon Musk, a vocal critic of “woke” AI, has pledged to build a politically neutral alternative through his xAI company. His chatbot, Grok, has been accused of promoting antisemitic and white supremacist content in recent months, including pro-Nazi posts and conspiracy theories—leading to internal corrections.

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Major projects in Western Canada are essential, but they require broad and genuine coalitions.

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Nation-building takes hard work and goodwill 

A couple of weeks ago, I was feeling a little despondent about the chances that the present federal government would take seriously its constitutional role in facilitating nation-building infrastructure across provinces, particularly something as ambitious (and contentious) as an oil pipeline.

This week, I’m feeling a little more upbeat. On July 6, Reuters reported Prime Minister Carney saying this:

“Given the scale of the economic opportunity, the resources we have, the expertise we have,” Carney said, “it is highly, highly likely that we will have an oil pipeline proposed as a project of national interest.”

In my adult life, I don’t think we’ve seen a true nation-building project. I was still a kid when the St. Lawrence Seaway and the Trans-Canada Highway opened.

One project I’ve been marginally involved in might qualify as nationally significant: the building of a container terminal at the Port of Prince Rupert (opened in 1914) in the early 2000s. It wasn’t a nation-building effort, but it took a crisis to set it in motion.

The situation in the early 2000s was not as intense as it is today, but it did involve major trade disruption. The emergence of China as a global manufacturing hub was upending shipping patterns. Every container terminal on the West Coast was operating over capacity, severely compromising supply chains. Not acting would have been a regretful missed opportunity.

What made the Prince Rupert proposal viable was geography and infrastructure. It sat at the Pacific terminus of the most underutilized section of a transcontinental railway in North America, an asset that had waited nearly a century to be put to good use, except during World War II.

Fairview Container Terminal was an economic lifesaver for Prince Rupert and the Indigenous communities surrounding the Port of Prince Rupert. Consultations with First Nations were anything but smooth. However, the terminal laid the groundwork for a significant improvement in the relationship between the Prince Rupert Port Authority (PRPA) and local Indigenous governments.

Today, Peter Lantin, a member of the Haida Nation, chairs the PRPA’s Board. Local Indigenous companies are investing in housing projects, owning and operating key hospitality and retail businesses, making up a significant portion of light industrial capacity, holding equity in heavy industry, and spearheading major projects, such as the South Kaien Import Logistics Park.

While the project carried national significance, it didn’t meet the threshold of a genuine nation-building effort. However, it still necessitated a broad coalition, stretching from Prince Rupert, through the Rockies, across the Prairies, and into the manufacturing heartlands of Ontario, Quebec, and the American Midwest, to rally support and address the concerns of others along the way.

The campaign, led by the Prince Rupert Port Authority and the City of Prince Rupert, had to reach beyond politicians, regulators, economic development agencies, and direct beneficiaries. The proposed port facility would be a key asset, but without a railway, it would not be.

The Canadian National Railway formed the backbone of the project, stretching across Canada and deep into the United States, with spur lines reaching thousands of communities, farms, and factories.

The subjective, business, social, and environmental concerns, especially those raised by people along the line, rested with CN Rail.

Some steamship lines and North American logistics providers were skeptical that a container terminal without a large adjacent market could succeed. A few also questioned whether CN Rail would commit the resources needed to support the terminal at scale. Meanwhile, some of CN’s existing customers worried they’d face delays, as containers were prioritized.

The issues became local as traffic volumes increased, resulting in a host of impacts on communities along the line. Container trains are generally longer than other trains, which compounds the impacts: more noise and vibration, longer waits at level crossings, and expanded rail yards in villages, towns, and cities. Safety concerns grow, especially at unregulated crossings and within rail yards.

Traffic growth also brings environmental consequences: twin tracking, new bridges, and overpasses. These changes often occur in remote areas, where they can disrupt wildlife and sensitive habitats.

The more difficult challenges were political. Addressing the legacy issues between the railroad and the First Nations whose land the railway crosses remains an ongoing and often complex process. But there has been real progress.

In this case, CN Rail determined that acquiring the government-owned BC Rail was critical to its participation. Like transmission lines, railways require a degree of redundancy. CN believed that if the line between Prince George and Prince Rupert were ever unavailable, it needed a secondary route to Vancouver that it controlled directly. The concern was that if the shared tracks with Canadian Pacific Kansas City Limited (CPKC) in the Fraser-Thompson Canyon became inaccessible, CN would have no fallback.

The BC government of the day agreed to the sale of BC Rail to CN, despite strong objections from the BC NDP.

All of this is a long way of saying that even a utility, stretching through countless communities, across rugged terrain, and multiple jurisdictions, requires a broad coalition to succeed, especially if it is controversial and undertaken in the national interest. Too often, both right- and left-wing ideologues, if not kept at room temperature, lose sight of the national interest.

I’m confused by Premier Eby’s comment that there should be no federal funding for an expected proposal for an oil pipeline to the North Coast, an infrastructure project deemed to be of nation-building scale. There’s no opposition to the pipeline itself, only to federal funding.

We haven’t heard any provincial premier complain about the billions in federal investment in port and airport authorities in Metro Vancouver, Victoria, Nanaimo, and Prince Rupert. The federally funded ports and airports now represent the single largest industrial sector in urban British Columbia.

While the benefits of those facilities are felt across the country, the direct gains, jobs, municipal infrastructure, and local economic activity, are concentrated in BC. Would oil piped to the North Coast not provide the same kind of broadly shared benefit, not limited to Alberta?

Hopefully, Premier Eby, and the NDP more broadly, will reach the position they now hold on the Site C Dam, LNG, and TMX (which they rightly support dredging to bring to full production).

These points are not criticisms. I’m impressed by his flexibility when considering natural resource projects in the context of provincial and national interests, and from a workers’ perspective.

We shouldn’t be so hesitant to supply democratically produced, cleaner-than-average oil to Asia. It creates leverage to secure many other export opportunities across the Pacific.

Jim Rushton is a 46-year veteran of BC’s resource and transportation sectors, with experience in union representation, economic development, and terminal management.

Photo credit to THE CANADIAN PRESS/Spencer Colby

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