CONTRIBUTORS
Garey J. Aitken, CFA
Head of Canadian Equities
ClearBridge Investments
Timothy Caulfield, CFA
Director of Canadian Equities Research,
ClearBridge Investments
Executive Summary:
Key Investments:
-
Housing: $25B for housing starts through public-private financing and GST relief for homes under $1M
- Defense: $30B to meet NATO's 2% GDP target, potentially benefiting companies like CAE and CGI
- Infrastructure: $115B for public water systems, transportation, and healthcare, which could be tailwinds for firms like AtkinsRéalis, Stantec, and Colliers
- Productivity & Competitiveness: $110B allocated, including Productivity Super-Deduction for manufacturing and clean energy
Implications:
- Effectiveness depends on strong execution for real earnings growth and equity market gains
- Reduced immigration targets may ease housing pressures but slow growth in banking and telecom
- Climate policies focus on carbon pricing and credit markets to balance emissions and
This year’s federal budget arrives at a critical juncture for Canada, recognizing the need for capital investment in the face of trade tensions, ongoing U.S.–Canada trade renegotiations and a tepid economic outlook. The combination of fiscal expansion and recent monetary easing offers stimulus, but durable results will depend on how effectively and immediately these policies translate into real investment and productivity gains. Importantly, the Canadian economy and the Canadian equity market are not synonymous, and while the budget targets broad economic stabilization and competitiveness, the direct beneficiary in the public markets is more nuanced, with so many Canadian publicly listed companies having substantial business beyond Canadian borders.
The Deficit:
The figure sure to dominate headlines will be the size of the deficit, projected to be a $78.3 billion in FY2025–26. Two fiscal anchors were announced: balance operating spending with revenues by 2028–29 and maintaining a declining deficit-to-GDP ratio. Importantly, with a minority Liberal government, the announced budget remains subject to parliamentary negotiation.
The bill commits $280 billion over five years toward what the Carney administration calls “transformative” investments. Below are some of the details of the investment component of the budget and a few examples of impacted holdings in the Franklin ClearBridge Canadian Equity Fund.
Housing ($25B):
Investments include the new Build Canada Homes Agency which aims to accelerate housing starts from 280,000 to up to 480,000 annually through public-private financing and GST relief for homes under $1 million. This is constructive for materials, industrials, and real estate sectors, contingent on ongoing improvements in labor availability and permitting bottlenecks. Banks would be direct beneficiaries of a robust mortgage market.
Defense ($30B):
Achieving NATO’s 2% of GDP target ahead of schedule marks a notable pivot. Increased spending on military readiness, cybersecurity, and sovereignty protection should benefit portfolio holdings such as CAE Ltd. (military training, simulation, and defense solutions) and CGI Inc. (system integration, and cybersecurity), which are positioned to capture contract growth.
Infrastructure ($115B):
Investments to revitalize core public water systems, transportation, land development and healthcare would serve as tailwinds for companies in engineering and consulting such as fund holdings AtkinsRéalis, Stantec, and Colliers. The introduction of a $5B Trade Diversification Corridors Fund and broader investment in ports, rail, and trade routes. While details are sparse, it signals a focus on economic resilience through increased access to overseas markets. Our holdings in Canada’s rail operators stand to benefit directly from enhanced trade infrastructure, which should support volume growth and long-term network efficiency.
Productivity & Competitiveness ($110B):
The new Productivity Super-Deduction is designed to spur capital investment by allowing accelerated write-offs for manufacturing equipment, clean energy, and automation technologies. Portfolio holding and automation expert ATS Corp. is well-positioned to capitalize on increased investment in advanced manufacturing.
Immigration & Climate Policy:
Outside these measures, the reduction in immigration targets in coming years may ease housing affordability pressures but also slow growth in sectors such as banking and telecommunication companies that have seen growth from strong population expansion in recent years.
On climate policy, Ottawa stopped short of removing the emissions cap, instead emphasizing carbon pricing and credit market development to align with a 2050 net-zero target. The government also reiterated its support for carbon-capture, utilization, and storage (CCUS) initiatives as a means of balancing emissions goals with industrial competitiveness.
Final Thoughts:
Overall, the 2025 budget presents a pro-growth framework backed by expansive fiscal support and a clear intent to reposition Canada for increased competitiveness. Although the budget offers few truly transformative surprises, its effectiveness will depend on strong execution. If implemented well, it could foster a more resilient economy and create greater opportunities for Canadian companies and investors. Without meaningful follow-through, these commitments risk remaining aspirational rather than translating into real earnings growth and sustained equity market gains.