High Oil Prices Give Ottawa More Room Before the 2026 Budget
Ottawa has not set a date for the 2026 federal budget, but oil at nearly US$90 a barrel has changed the fiscal starting point.
West Texas Intermediate, the North American benchmark for oil prices, was trading around US$90 in recent weeks. Tensions in the Strait of Hormuz pushed it higher. That level sits well above Ottawa's planning assumptions.
Canada's 2025 budget, released in November as the first under a shift to tabling the budget in the fall instead of the spring, assumed WTI would average US$65 per barrel in 2026. The April spring fiscal update raised the 2026 assumption to US$73 The Globe and Mail.
The effect on revenue is already visible. Federal revenues were up 10 per cent year-over-year for the April to June period, according to Desjardins deputy chief economist Randall Bartlett CTV News. Bartlett expects Finance Minister François-Philippe Champagne will show improved deficit-to-GDP and debt-to-GDP ratios in the fall budget compared with the April fiscal update. Those ratios compare the deficit and debt to the size of the economy, a common way to judge whether borrowing is under control. The gap is large. A $17 spread over the spring assumption, if sustained, changes Ottawa's near-term fiscal room. Like a temporary pay bonus, it helps in the short term but may not last.
Some of that room is already spoken for. In September, Champagne announced an extension of a gas tax break that was set to expire on Labour Day until Jan. 31, 2027. The extended break will be halved until the end of March before being phased out completely. The Finance Department estimated the extension will cost about $2.9-billion in lost revenues.
Two weeks after the gas tax break extension, Prime Minister Mark Carney announced a "productivity mega deduction" at an investment summit in Toronto. The measure lets companies write off the full cost of new investments right away for tax purposes, rather than spreading the deduction over several years. It covers about two-thirds of capital assets, the equipment, machinery and technology firms buy to grow. Certain types of buildings and natural gas pipelines are excluded. The government estimated the cost at $36-billion over five years.
Departmental documents set out the details behind that headline number. The estimated incremental fiscal cost covers five years beginning in 2026-27 Department of Finance. The measure increases the share of assets eligible for immediate expensing from roughly 15% to more than 65%. Software is included among assets eligible for immediate expensing. The government's introduction of the measure to help businesses invest, grow and create jobs was listed as dated 2026-10-01.
Parliament still has to approve new spending. The federal government's first Supplementary Estimates for the 2026-27 fiscal year seeks Parliament's approval for $11.1 billion. These estimates are the formal requests departments put to MPs for extra money during the year. Champagne's budget consultations include discussion of supporting growth in energy, critical minerals, defence spending and AI.
The provinces read the same oil price differently. Alberta's 2026 budget projects West Texas Intermediate at US$66 per barrel, while private forecasts average US$60.50. On fuel taxes, Poilievre says lifting the fuel excise tax, clean fuel standard and GST surcharges would save about 25 cents a litre.
The broader context here is the difference between a temporary lift and a lasting commitment. For budget watchers, the question is how much of the oil-driven revenue gain Champagne treats as ongoing fiscal room and how much he treats as temporary. Corporate profits and resource revenues move quickly with prices. Personal and consumption tax bases move more slowly. A fall budget built on $90 oil would set a higher baseline than either Ottawa's $73 spring assumption or Alberta's $66 and the private-sector $60.50 average.
In my view, the order of decisions matters for the House as well. A gas-tax extension with a defined phase-out and an investment deduction spread over 2026-27 to 2030-31 create different control problems. The first reduces revenues in the near term and then ends. The second shapes investment timing across several fiscal years and across federal-provincial tax collection agreements. With Supplementary Estimates still before Parliament and consultations spanning energy, minerals, defence and AI, Champagne has competing claims on any windfall before the budget is even tabled.
