Special Report

April 24, 2025 | 09:28

Canadian Election 2025: The Economics

Economist

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

With the major parties releasing their official platforms just days before the April 28 federal election, we can only now fully dig into the costed plans. There are similarities, but there are still fundamental differences in fiscal priorities.

Better late than never. We normally publish our pre-election economic analysis weeks earlier in federal campaigns. But with the major parties releasing their official platforms in this final week, we can only now fully dig into the costed plans, just days before the vote on April 28 (Table 1, next page). Prior to receiving the meaty details, it was widely assumed that federal finances were in a tough spot, given: 1) a soft starting point, 2) the dark trade cloud looming over the economic outlook, 3) new spending commitments related to defence and border security, and 4) the variety of (sometimes expensive) promises made by all parties during the campaign. Plus, the two leading parties have both scrapped the hike in the capital gains tax inclusion rate, at a cost of $3 billion per year on average over the next four years. Below, we focus on what the two leading party platforms would imply for government finances and the economy (with details of the four largest parties’ platforms in the appendix).

While there are many commonalities between the two major parties on the economic front—including the aforementioned reversal on capital gains, the end of the consumer carbon tax, and the removal of GST on new homes—there is a fundamental difference on the fiscal front. In a nutshell, the Liberals expect the budget deficit to widen this year and remain larger than the Parliamentary Budget Office (PBO) baseline assumptions over the next four years, while the Conservatives aim to reduce it versus PBO projections (Chart 1). The end result is that Ottawa’s debt/GDP ratio would be close to 43% by 2029 in the Liberal scenario versus just over 39% under the Conservative’s plan (both versus just over 40% with the PBO).

Of course, these projections must be viewed through the lens of them being political documents, and the forecasts can be seen as more aspirational than likely outcomes. But the projections do highlight priorities, and the key difference is that the Liberals are leaning to more spending/investment, while the Conservatives are more focused on containing the deficit alongside slightly more tax relief. But what is truly striking from the projections is that even the Conservatives are no longer aiming to balance the budget in the forecast horizon, while the Liberals have essentially fully cut loose the last of the fiscal anchors with the debt/GDP ratio creeping up in their projections. Both of these reflect the new reality of a more challenging economic and fiscal backdrop versus even just six months ago. And, tellingly, these forecasts are based on the assumption of decent economic growth—1.7% for GDP this year, versus our call of 0.7%, and compared with the Bank of Canada’s dour Scenario 2, when growth is projected to fade to -0.2% in 2026.

It’s fair to say that both parties employ optimistic assumptions to hit their goals, with the Liberals counting on substantial unspecified spending savings and the Conservatives relying on strong growth multipliers from various measures (and baking in potential revenue gains from the expected boost to growth). We strongly suspect that in both cases, deficits would be larger than projected if the parties carry through with the many election promises. Moreover, there is the overriding risk to both plans that the economy could easily turn out to be much softer than baseline projections, especially in light of the deep U.S. policy uncertainty, both on the trade front, and now even for monetary policy. Here are some key points from each of the two major platforms (extensive details in the appendix; we include the smaller party platforms in case there is again a minority government, whereupon those proposals could become important):

Liberal Platform

On the tax side, the main measure is a 1 ppt reduction in the lowest income tax bracket, and removing the GST on new homes for first-time buyers.
On the spending side, some of the big-ticket items include a $2 billion Strategic Response Fund to support industries, and $2 billion in direct support for workers and businesses during the trade war.
Large outlays for infrastructure (transportation and trade-related).
Ambitious housing policy to spur new building, including a government Build Canada Homes agency.
Defence spending to exceed 2% NATO target by 2030 (vs 1.3% recently).

Conservative Platform

On taxes, lower the lowest rate by 2.25 ppts in three phases.
A $5,000 top-up in TSFAs for funds invested in Canada. Deferral of capital gains tax if reinvested in Canada. Delay in RRIF requirements by two years to age 73.
Remove the GST on Canadian-made autos, and on all new homes under $1.3 million. Remove the carbon tax on large industrial emitters.
On the spending side, funding to support jobs affected by U.S. tariffs. Deep reductions in government spending on consultants, and on foreign aid.
Defence spending of 2% of GDP by 2030.
Streamline and speed up approval process of resource development, remove emissions cap on oil & gas, support East-West pipeline.

Net Fiscal Impact

Sifting through the various measures, we have attempted to suss out the net new spending and tax measures, and how much they may drive growth. Table 2 is our best estimate based on available information, and it suggests that the biggest gap in policy will land in the current year. With both parties expecting Canada’s retaliatory tariffs to raise $20 billion (or 0.6% of GDP)—which can be thought of as a tax increase—the net new stimulus under the Liberals is +0.5% of GDP in FY25/26, versus net restraint of 0.4% under the Conservatives. The Liberals are projecting new spending of 0.8% of GDP and tax relief of 0.2% this year (total support of just over 1% of GDP before the tariff revenue), while the Conservatives are projecting tax relief of 0.3% of GDP, but spending reductions of 0.1% of GDP (total support of 0.2% of GDP before tariffs). That summarizes the key distinction in priorities for this fiscal year, but the difference in overall support narrows substantially in the out years—with the Conservatives planning somewhat higher tax relief in coming years, while the Liberals will boost spending further.

Bottom Line: While many have highlighted some of the similarities in the proposals by the two leading parties, there are still fundamental differences in priorities. Given the political nature of the official platforms and the deep uncertainty surrounding the economic outlook, we would recommend that the fiscal projections be taken seriously, but not literally. The Liberals plan on being much more activist in supporting the economy through spending on infrastructure, housing and other programs, at the cost of a higher budget deficit. The Conservatives are more focused on controlling the deficit through spending restraint, while leaning more toward lower taxes and reduced regulation, but with less direct support for the economy and housing. Yes, they have some similar policy proposals, but the lines are thus fairly clearly drawn on the fiscal priorities.

Special Report

Canadian Election 2025: The Economics

Liberal Platform

Conservative Platform

Net Fiscal Impact

Appendix: Party Platforms