Prime Minister Mark Carney unveiled the second budget of his term on Thursday
Prime Minister Mark Carney has taken advantage of an oil revenue windfall to include tens of billions of dollars in new spending in his second federal budget, which focuses on building national sovereignty and addressing the high cost of living.
"That's what this budget does: it's the next big step in our action plan to make this country more independent, more sovereign," Carney said on Thursday.
"It focuses on growth, on people and that sovereignty, so we can live our lives as we wish."
The budget - titled Masters of Our Destiny - lays the groundwork for a Canada that is less reliant on the US for trade. It also aims to tackle the stubborn affordability crisis by promising billions to end homelessness and build new housing.
The C$142bn in new spending over the next five years is thanks to better than expected revenues from oil prices bolstered by the Iran War.
Canada's deficit is over C$50bn ($36bn; £27bn), with no path to balance.
Despite new spending, the budget shows that Carney has kept his previous fiscal goals intact.
The country still expects its GDP to grow modestly in the next year, outpacing all G7 countries except the US. Its unemployment rate, while unsteady month-to-month, is overall lower than last year.
But as people continue to feel squeezed by inflation and unaffordable housing, pressure has been building on Carney to translate his major investments into relief for the average Canadian.
And some sectors of the economy are feeling deep pain due to US President Donald Trump's tariffs on key Canadian industries, leading to thousands of job losses and uncertainty that has slowed business investment.
Here is a breakdown of some of the key takeaways for the 2026 federal budget.
A plan to end homelessness within a decade
One of the largest line items in Carney's second budget is an C$11.2bn commitment over the next four years to combat homelessness.
This includes funding for supportive housing, mental health and addictions treatment.
Statistics Canada reported last year that one in eight Canadian households have experienced a form of homelessness in their lifetime.
The government will also boost a grocery benefit that is available to low-and-modest income Canadians, which is estimated to provide C$2,570 for a family of four within one year.
Canada's opposition Conservatives have been pressing the Liberal government on cost of living a main pressures and routinely accused the prime minister of spending too much time on foreign trade missions and not enough addressing kitchen table issues.
There are signs that Canadians are struggling to make ends meet. Average hourly wages have not kept up with inflation, according to Statistics Canada. Food bank usage has hit record highs.
The average price of a home in Canada has dropped around 22% in recent years, mostly due to a clamp down on immigration. But houses are still too expensive for many in Canada's major cities - namely Toronto and Vancouver.
And like the rest of the world, the rising price of fuel has made everything - from gas to groceries - more expensive.
No boost to immigration levels any time soon
After hitting record population growth in 2023, which was fuelled largely by immigration, Canada has scaled back its newcomer targets significantly.
This includes a cap on international students admitted into Canada and temporary foreign workers, which have been relied on companies to ease labour shortages.
The Carney government has previously said it will keep its permanent resident admission target to 380,000 people annually until 2028.
Meanwhile, it will gradually reduce its temporary resident arrivals to 370,000.
There has been pressure on Carney to increase some of those numbers. A report from the Royal Bank of Canada in September, external warned that "without immigration, the country's population would shrink to half its size by the turn of the century".
On the other hand, the Conservative opposition has called on the government to further lower its targets.
In the new budget, Carney has opted to keep immigration levels flat.
Helping businesses through US tariff dispute
A big focus of the Carney government has been reducing Canada's reliance on the US as a trade partner, while also helping cushion the blow from Trump's tariffs on its key sectors.
Last year, it promised millions in backing for businesses working to develop new export markets. It also lowered Canada's marginal effective tax rate in a bid to stop businesses from moving to the US to escape tariff pains.
This budget builds on that, including plans to support specific sectors hit by US tariffs like steel and forestry.
Since March 2025, the Carney government has set aside nearly C$44bn in support for workers and businesses hit by US tariffs, the budget notes.
The budget states that "diversification will take time, given the scale and depth of Canada's economic relationship with the United States. But the shift is underway".
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Sovereignty through arts - and rockets
Sovereignty is a big theme in second budget, which proposes funding different measures to strengthen Canadian identity - whether it be through the arts or in space.
Canada is the only G7 country that does not have the capability to launch its own rockets. A line item in the budget looks to change that C$2.7bn earmarked to developing Canadian space technology and launch infrastructure.
On arts and culture, Carney is promising a tax exemption on income that is made through "original and creative artistic works".
The budget also sets aside C$32.2m over four years to establish a free national digital library for Canadians. It will launch with at least 200 titles with plans to expand in coming years.
Carney had previously pledged to significantly boost defence spending to meet the Nato target of 5% of annual GDP by 2035.
This year's budget provides some insight into where that money is being spent.
That includes a marketplace, launched earlier this year, to sell Canadian-made drones. It will get a cash injection of C$2.3bn over five years.
More funding will also go into support for Operation Reassurance, Canada's largest overseas deployment mission to deter Russian aggression in eastern Europe.
