By Erik Hertzberg
(Bloomberg) — Bank of Canada Governor Tiff Macklem offered a subtle endorsement of the government’s plans to spend on infrastructure, saying policymakers in the past have not done enough to boost productivity and real incomes.
Output per worker stagnated during the decade Justin Trudeau was prime minister as he prioritized policies to redistribute wealth. Since taking power in March, Mark Carney has cut taxes and announced plans to fast-track major projects such as port expansions, liquefied natural gas terminals and mines.
“We’ve over-relied on priming demand and not spent enough time on the tougher decisions of structural reform and making the investments that we need to actually grow the economy over the long term,” Macklem said in an interview with Bloomberg News.
Trade agreements, coupled with large-scale infrastructure like pipelines and ports that allow companies to get their goods to new markets, are essential for encouraging businesses to take risks, Macklem said.
Those sorts of projects are “important roles for government,” he said. “Ultimately it’s going to be businesses that are going to walk through that door or not. But you’ve got to create the opportunity.”
Canada’s economy is still suffering from the shock of U.S. tariffs, which have caused significant pain in industries such as steel and autos. Exports plunged 27% on an annualized basis in the second quarter, contributing to the economy shrinking at a 1.6% pace. Economists surveyed by Bloomberg see very slow growth the rest of the year before a pickup in 2026.
Macklem’s comments underscore the difficult political task facing Carney. He has talked about plans to spend billions on defense, housing and infrastructure to help offset the economic drag caused by the trade war — and to do so with speed. But those investments will still take longer to be felt by Canadians than the stimulus checks often deployed by Trudeau.
The new prime minister is setting policy at a time when the cost of living remains a top political issue for Canadians. Federal and provincial governments in Canada spent heavily on income support during the Covid pandemic — and some continued to send cash to Canadians after the surge in inflation, which peaked in Canada at 8.1% in 2022.
Productivity gains, and the higher real incomes that come with them, are “the only way to make everything more affordable,” Macklem said, pushing back on suggestions that price decreases might also be an option.
One role of fiscal policymakers is “making sure it’s not unnecessarily costly to do business” in Canada, creating conditions that will allow private investment to flourish, said Macklem, who was the central bank’s senior deputy governor when Carney was governor.
Carney campaigned on a “spend less, invest more” economic policy, and he’s trying to cut the cost of government operations to free up money for capital projects. Economists surveyed by Bloomberg are expecting the federal deficit to balloon to about $70 billion when Finance Minister Francois-Philippe Champagne reveals the budget on Nov. 4.
“In a world where supply chains need to be more resilient, in a world where there is a need to protect yourself from risks, there will be some costs,” Macklem told reporters after a speech in Saskatoon, Saskatchewan.
Last week, the Bank of Canada cut its policy interest rate to 2.5%, the first reduction since March. Macklem reiterated that the uncertainty posed by U.S. tariffs means the bank is setting monetary policy with risk management in mind.
“The inflation side looked a bit more contained and the economy looked a bit weaker. Balance of risk had tilted favor to cut,” he said.
“I expect we’ll be doing that risk calculation each time.”
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Last modified: September 25, 2025