The Dreaded Costed Plan

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Today’s email is a longer one and focused on the Canadian election but I think there are important lessons for all world governments and that is the “Costed Plan”. Normal folks hear all these numbers and think “wow that sounds great”, but they are usually full of smoke and mirrors.

FYI we’re doing an Election Livestream tonight at 4:30PM PST on YouTube, Twitch, & X so make sure you’re following us!

And if you prefer video, Part 1 and Part 2 of our Canada Election videos.

Canada’s 2025 election is shaping up as a choice between two bold visions. One is government-led investment on a massive scale. The other is market-led growth unleashed through deregulation and tax cuts.

Both sound compelling. Both have their slogans ready. Both want you to believe that with the right prime minister, Canada can grow its way out of looming trouble.

There’s just one problem.

Neither platform survives a serious look at its underlying assumptions.

Both Carney’s Liberals and Poilievre’s Conservatives are running on costed plans that depend on the economy doing exactly what they hope, not what history, math, or basic economics suggest will actually happen. This is what polite economists call "dynamic revenue." Most normal people would call it wishful thinking.

Carney’s Bet: Big Spending, Bigger Payoff

At first glance, Mark Carney’s fiscal plan looks serious and sophisticated. He promises:

• C$129.2 billion in new gross spending.

• A split between capital and operating budgets, allowing him to promise an "operating surplus" by 2028.

• Annual investment boosts worth about 0.75 percent of GDP.

Carney wants to split the books into capital and operating sides, borrowing a trick from Quebec to make the numbers look cleaner without actually shrinking the deficit. His team says they will balance the operating budget by 2028 through a "program review" and squeezing out productivity gains with AI. They do not explain exactly how AI saves billions, but as everyone knows, adding "AI" to a government plan magically solves everything.

Carney also promised to cap operating spending growth at 2 percent a year, down from the current 9 percent sprint.

On the revenue side, Carney’s Liberals plan to:

• Rely on C$20 billion in tariff revenues from Trump countermeasures.

• Save C$28 billion through administrative efficiencies like cutting consultants.

• Avoid dynamic scoring, meaning they do not assume growth will magically fix the books. (His platform is based on static assumptions using the Parliamentary Budget Office (PBO) March 2025 baseline: about 1.7 percent real GDP growth in 2025​).

Even with these assumptions, Scotiabank notes Carney’s platform still adds C$83 billion to the deficit. It also banks on real GDP growth of 1.7 percent in 2025, higher than private economists estimate.

The Hidden Assumption:
Carney is betting that massive public investment will crowd in private sector growth, raise productivity, and keep the debt manageable. He is also assuming there will be no tariff-induced recession, no global slowdown, and that Ottawa will suddenly become fast and competent at infrastructure delivery.

The Real Problem:
Infrastructure multipliers take years to materialize. Ottawa’s history of delivery, from cancelled pipelines to the $54 million ArriveCAN app, suggests delays, cost overruns, and finger-pointing. Meanwhile, tariffs are already hammering trade. If a recession hits, Carney’s careful scaffolding collapses.

Poilievre’s Bet: Deregulate, Cut Taxes, and Trust the Market

Pierre Poilievre’s plan sounds leaner but carries its own heavy bets. He promises:

• C$110 billion in gross tax cuts and incentives.

• A 2.25-point cut to the lowest income tax rate.

• The deferral and reversal of capital gains taxes to spur investment.

• Major deregulation of energy, housing, and resource sectors.

On the savings side, Poilievre claims:

• C$148 billion in savings.

• But over C$53 billion of that comes from dynamic revenue scoring, assuming tax cuts and deregulation will flood the treasury.
  

Without counting this "phantom growth," Poilievre still has a C$15 billion shortfall.

His platform also claims "productivity savings" from faster private sector growth. And while growth would surely help, assigning a specific dollar figure to it requires extremely generous assumptions, the kind usually made by first-year investment banking analysts pitching why Tesla should rule the world.

The Hidden Assumption:
Poilievre is betting that tax cuts and deregulation will unleash a wave of private investment, housing starts, and energy production so strong it fills the fiscal gap without painful spending cuts.

The Real Problem:
Supply-side miracles are rare, especially when borrowing costs are high. Personally, I do not see yields coming down significantly unless the Bank of Canada is forced to cut rates in response to a trade war-driven slowdown (which it might have to). Reagan’s 1980s tax cuts exploded the deficit before growth caught up. Today’s Canada faces anemic productivity growth, aging demographics, brain drain, global competition, and more. Poilievre is counting on a private sector that has been decimated over the last 10 years.

• Canada lost close to $225 billion in foreign investment from 2016 to 2022, as FDI inflows fell by 15% and outflows rose by 16%. The average annual negative FDI balance was -US$23.9 billion, three times higher than during the previous Harper government

• Furthermore, Canada is behind on sectors that Poilievre wants to prioritize like LNG. Over the last 3 years Canada has declined to supply allies with natural gas at least 4 times. (Germany went to Qatar and Japan went to the US)

The Shared Illusions

While their rhetoric could not be more different, Carney and Poilievre share a few dangerous illusions:

1. Trump’s Trade War Won’t Get Worse
Both plans bake in C$20 billion in tariff revenue. Neither models what happens if Trump escalates tariffs on steel, autos, or energy exports to 50 percent or 75 percent.

2. Canada’s Economic Cycle Can Be Ignored
Neither plan budgets for a recession. Scotiabank warns that even a mild downturn could widen deficits by 2 percent of GDP.

3. Savings Are Easy
Carney claims C$28 billion in government productivity savings. Poilievre claims C$23 billion by cutting consultants. Both rely on savings Ottawa has consistently failed to deliver in the past.

Carney

Poilievre

Historical Parallels: Hope is Not a Plan

Let’s look at what happens when governments build budgets on hopium:

When governments bet on best-case growth to justify bigger deficits, history tends to punish them, fast.

Execution is Everything

Scotiabank's economists make a crucial point: execution risk is not priced into either plan.

Carney’s plan depends on federal and provincial governments suddenly coordinating large-scale infrastructure projects efficiently.

Poilievre’s plan depends on private sector capital responding instantly to deregulation, despite long lead times for projects like housing and energy.

Both plans underestimate how slowly Canada actually builds anything. Both ignore how much power municipalities, provinces, and courts have to slow down national dreams.

Both are trying to steer Canada through a gathering storm without a tested compass.

This election is not about fiscal discipline. It is about which fantasy Canadians trust more.

• Carney believes the government can build Canada out of a slow-growth trap before debt becomes crushing.
  

• Poilievre believes the free market can save Canada before falling revenues and angry bond markets catch up.
  

Both plans are fundamentally fragile. Both rely on growth arriving on time and on budget. Both will bring short-term sugar highs at the cost of long-term pain.

Poilievre’s plan is marginally better but still counts on economic miracles. Carney’s plan is more intelligent than Trudeau’s but still chained to fantasy forecasts.

In short: Canadians are being asked to pick a pilot. But the storm is already here, and neither plan looks fully seaworthy.