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Investing.com -- The Liberal Party has secured another term in Canada’s federal election, but leadership under Prime Minister Mark Carney marks a sharp pivot in direction, according to CIBC (TSX:CM) Economics. While the outcome had been forecast by pollsters, uncertainty remains over whether the Liberals will require help from the NDP or Bloc Québécois to govern.
A minority government could elevate fiscal pressures if coalition partners push for spending on health care or regional priorities. CIBC’s Avery Shenfeld noted this could be offset by delaying key Liberal platform items instead of expanding the deficit further.
Already, larger deficits appear likely under Carney’s watch, given his platform and economic headwinds. “Budget deficits look likely to head higher in the near term,” Shenfeld wrote.
The Liberal campaign promised expanded infrastructure spending, carbon tax adjustments, and housing affordability measures. These include removing the GST on homes under $1 million for first-time buyers and $25 billion in debt-financed support for homebuilding.
The platform also proposes a 1% cut to the lowest income tax bracket and faster movement toward the NATO target of defense spending equal to 2% of GDP. Operating spending would be reined in over a three-year horizon, largely through efficiency measures and a staffing cap.
A top priority for Carney will be navigating trade tensions with Washington, which are dampening the outlook. “A phone call between Carney and President Trump... has reportedly set the stage for direct talks over the current trade frictions,” Shenfeld said.
CIBC warns that the Liberal fiscal plan is based on optimistic economic assumptions that may not materialize. If growth falters or tariffs intensify, the resulting shortfall in revenue and spike in support spending could push deficits well above current projections.
Investors will get more clarity when an updated federal budget is delivered, now delayed until June. “It’s going to be a busy spring for investors with interests in Canada’s bonds, foreign exchange and equities with sensitivity to environmental, regulatory and trade policies,” Shenfeld wrote.
