Why Canada’s finances are about to take a hit, no matter who wins the election #CanadaFinance

With Canada facing an evolving trade war and many big-ticket election promises already out there, this election’s winner may have a hard time keeping Canada’s finances in check.

Early campaign proposals from all parties — income tax cuts, military spending, cuts to the goods and services tax (GST) and tariff relief — threaten to leave Canadians with billions in new spending that could take more than five years to pay for, according to a recent note from Scotiabank.

“The fiscal outlook gets rewritten regardless of who takes the helm after April 28,” Scotiabank said in the note.

“Over the next five weeks, vying candidates will set out policy platforms to guide the country not only through the coming quarters, but years ahead. Canadians are hardly preoccupied with the federal deficit right now as affordability, trade tensions, and healthcare dominate minds and hearts.”

In his brief stint as prime minister before calling the election, Liberal leader Mark Carney cancelled the capital gains tax increase and removed GST on first-time home purchases under $1 million. These moves — combined with a chill from economic uncertainty — could leave a $57 billion hole through 2030, Scotiabank predicts.

Carney has since promised income tax cuts, boosted military spending and tariff relief for auto workers.

Some of Conservative leader Pierre Poilievre’s financial pledges echo Carney’s, though are larger in scale with deeper tax cuts and GST-free new home purchases under $1.3 million for everyone.

While none of the plans have been costed, Poilievre has pledged to pay for his promises with a dollar-for-dollar rule to find savings equal to every spending measure and to cut bureaucracy and contracts with consultants.

While major both parties expect to trim the federal workforce, Scotiabank predicts even the deepest cuts would do little to balance the new spending promises.

“Compensation reflects only about 12 per cent of total federal expenditures,” Scotiabank said. “Cuts of any reasonable magnitude are only likely to deliver a couple billion in savings at best …. All this suggests there is no easy route to finding quick savings in the order of magnitude of potential spending pressures.”

On Wednesday, United States President Donald Trump’s auto tariff announcement stoked further flames in the trade war, while also promising reciprocal tariffs to come next week.

Scotiabank thinks Canadians could see a rescue package of two per cent of GDP or about $60 billion in discretionary spending over two years in the event of a full trade war.

Whether Canada can afford the new spending is another question.

“Canada’s lack of reserve status, disproportionate trade exposure, weak productivity performance, and the illiquidity of some of its financial assets all warrant caution,” Scotiabank said in the note.

“The country cannot afford pandemic-era policy over-reaches, nor can it afford to miss the opportunity to front-run major investments to unlock greater productivity gains over the medium-term. These ultimately are the best insurance against the current uncertainty facing the country.”

• Poilievre is promising to raise the annual tax-free savings account contribution limit by $5,000, provided the extra amount supports Canadian companies that pay Canadian taxes.

• The Green Party of Canada has promised to raise the Basic Personal Amount from $15,000 to $40,000, which the party says will save Canadians up to $3,675 in taxes annually.

Campaign Disptach is the Financial Post’s daily look at the most important economic story from the federal election. Watch for it at noon every weekday.