What Is Carney Going to Do With the Foreign Aid File?
Commentary
The federal election is over, and within a few months there should be a budget tabled and debated in the House of Commons. No doubt, Canadians are waiting anxiously to see what the new Liberal government will do with its tax revenues. What files will Prime Minister Carney increase spending on, and on what files will he slow spending down?
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Canada pledges to meet Nato's 2% defence spending target within a year
Canada will significantly boost its defence spending to hit a Nato target of 2% of GDP years earlier than planned, Prime Minister Mark Carney has announced. In a speech at the University of Toronto on Monday, Carney said the action was required to ward off the "multiplying" threats from hostile governments, terrorist entities and cyber criminals. He also conceded his country was "too reliant" on the United States for defence, adding that Washington was "reducing its relative contribution to our collective security". Nato Secretary General Mark Rutte is pushing for members to agree to a new spending target of 3.5% of GDP at a summit later this month. In his address, Mark Carney said the world was at a "hinge moment" similar to the end of the Second World War. He said his country must act in the face of an aggressive Russia and China, and threats to Arctic security. He also accused Washington of looking to "monetise its hegemony" by making access to its market more costly. Canada spent 1.4% of its GDP on defence in 2024. GDP stands for gross domestic product, and is a measure of all the economic activity of companies, governments, and people in a country. During the election campaign earlier this year, Carney had pledged to hit the 2% spending target by 2030, while the previous government under Justin Trudeau had promised to meet it by 2032. However on Monday, Carney said the spending goal would be hit by March next year. The prime minister said Canada's equipment had aged, "hindering our military preparedness". Only one of four submarines were seaworthy and less than half the maritime fleet and land vehicles were in good working order, he said. Carney said the new strategy would have four pillars - investing more in soldiers and equipment, expanding the military's capability, strengthening the domestic defence industry, and diversifying Canada's defence partnerships. This is an age where "middle powers" must act to defend themselves knowing "if they're not at the table, they're on the menu", Carney said. Carney's announcement comes just a week before Canada hosts the G7 Summit from 15 to 17 June. Speaking to reporters later, Carney said the government's new plan includes a cash increase of C$9.3bn ($6.5bn, £4.8bn) for this fiscal year, which he said will bring Canada's defence spending to the Nato threshold. Some of it would be immediately "spendable" on personnel and equipment. This would include investing in new submarines, aircraft, ships, armoured vehicles and artillery, as well as new drones and sensors to monitor activity in the Arctic and seafloor approaches to the country, he said. Carney said the government would also create a new defence procurement agency, following criticisms of the current process as slow and unwieldly. The agency would "move more quickly in making procurement decisions" and would focus on building domestic capacity. A report by a parliamentary committee in June 2024 highlighted that delays, cost overruns, bureaucratic hurdles, a shortage of personnel and the politicisation of the defence procurement process raised concerns about the government's ability to provide the armed forces with the equipment it needed "in a timely and cost-effective manner". Nato members have for years pledged to meet the 2% target - now seen as the bare minimum - but Canada has long lagged behind its allies. Nato Secretary General Mark Rutte arrived in London on Monday where he said the military alliance needed a "400% increase in air and missile defence" to maintain a credible defence deterrence. Last week, Rutte proposed that Nato members spend 5% of their GDP on defence - something US President Donald Trump has called for in the past. Nato chief is determined to give Trump a win with 5% defence spending plan Talks ongoing over Nato defence target, says No 10 Canada proposes sweeping immigration and security bill
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Hidden risks for Canadians planning to downsize their retirement
Residential real estate makes up a significant share of household wealth, accounting for 41 per cent of Canadians' total assets at the end of 2024, according to Statistics Canada. Many homeowners hope their property will help fund their retirement and some are relying heavily on a downsize. Planning first and selling second can reduce the potential risks that may arise with a retirement downsize plan, but it's not always the windfall retirees expect. Real estate prices have been under pressure. The composite home price in Canada is down 3.6 per cent from April 2024 to April 2025, according to the Canadian Real Estate Association. Despite this, some markets in Quebec and the Maritimes have had double-digit gains during that time, highlighting the adage that location matters. Declines in Ontario have brought down the national average, with several markets down in the high single digits year over year. The Greater Toronto Area benchmark price since the February 2022 peak has declined 21.3 per cent. Retirees or near-retirees counting on a turnaround are at risk because it may not materialize. The Organization for Economic Co-operation and Development (OECD), credit rating agencies and bank economists are forecasting job losses and flat growth or even a potential Canadian recession in the second half of 2025. We may already be in the early stages of a recession, which is marked by two consecutive quarters of economic contraction, but we will not know for sure until later this year. These forecasts may or may not prove accurate since there are many forces at play. But homeowners banking on a turnaround in home prices should be cautious. Home ownership costs remain high based on the income of average Canadians and this limits price appreciation potential. There are also lots of five-year, sub-two per cent fixed mortgages maturing over the year ahead that will renew at much higher rates. Real estate differs from traditional investments such as stocks and bonds. A poor sequence of returns is a risk for retirees relying on their investment portfolio. But this is based on a series of low annualized investment returns in the early years of retirement. Selling real estate is a one-time transaction at a single point in time. It can be like having to sell your entire investment portfolio all at once on the same day instead of drawing them down over many years. Even if real estate prices were on fire right now, I would still urge caution for anyone counting on a near-term profit. But if your retirement plan counts on selling your home in a few years for 10 per cent or 20 per cent more than it is worth today, that may not happen. And if you are valuing your home today based on the 2022 peak that was 10 per cent or 20 per cent higher, your retirement plan may not be realistic. It can be expensive to move and the transaction costs may surprise homeowners who have not done so in many years. Real estate commissions are paid by the seller and generally range from three per cent to six per cent of the selling price, depending on the province, the value of the home and other factors. Land transfer taxes and similar government fees to buy can range from one per cent to three per cent. Other miscellaneous costs such as legal fees and hiring movers have an impact as well, and there are unanticipated costs like new furniture or decorating, replacing appliances or minor maintenance. If a homeowner is planning a minor downsize, these costs can wipe out 10 per cent of your home value, so moving to a slightly less expensive home may not provide the hoped-for padding for retirement funding. If you downsize and suddenly have more money to invest, how you invest it matters. As the numbers get bigger and as the decumulation phase approaches or begins, some investors become more concerned about investment losses. Some retirees may put their investment risk tolerance to the test and find their comfort level with stocks is lower than it was when they were accumulating savings. As a result, a retirement plan should arguably rely on a lower future return than past returns, especially coming off a 13.6 per cent annualized return, including dividends in Canadian dollars, for the S&P 500 over the 10 years ending May 31. The nine per cent total return for the S&P/TSX capped composite index over that same period, while lagging United States stocks, has still been quite strong. I may be proven wrong in 10 years, but a North American-focused stock portfolio may not have double-digit returns looking back to today. Some retired investors risk becoming more motivated to try to time markets, moving in and out of stocks to try to protect their nest egg. In some cases, with the blessing of their advisers. It can be easier to appease a client than to push back and risk being occasionally wrong. And with more self-directed investors taking the helm of their portfolios, there may be less resistance to poor investment practices such as panic selling or chasing speculative investments. Downsizers may have to get rid of many years of accumulated personal effects, lose a backyard that kept them busy and find it more difficult to host family and friends. This makes the subsequent destination more important than the selling price of a home because all the money in the world may not matter if the emotional toll of a downsize is too high. This fear can lead some would-be sellers to never sell at all. This hesitancy can become overwhelming for some to the point where they never end up moving. It may be harder to move as you get older, too, and riskier if your home is not a safe place to age. That multi-level backsplit home might have been great to raise a family, but it can be dangerous as mobility begins to wane. The principal residence exemption in Canada generally shields a Canadian taxpayer from paying capital gains tax when they sell their home except for rare exceptions. U.S. citizens in Canada should be mindful of a potential tax trap when they sell their home. Americans are taxable on their worldwide income even when residing in Canada. Because Canadian tax rates are generally higher, and there is a foreign tax credit mechanism that avoids double taxation, there is typically little to no tax payable to the U.S. Internal Revenue Service. However, there are limits in the U.S. for the tax-free sale of a principal residence. There is a $250,000 home sale tax exclusion — $500,000 for a couple — that can be claimed. This is the U.S. dollar exclusion, and there needs to be a foreign exchange conversion for Canadian real estate. Considering Canadian home price values and appreciation in some parts of the country, there are U.S. citizens living in Canada who could be on the hook for unexpected U.S. tax on the sale of their home, especially if they have owned their home for a long time. The importance of contingency planning as you — and your advisers — age Four considerations for your investments in the new year Planning ahead can help provide confidence and avoid surprises. There can be risks for those planning to downsize in retirement, so being proactive can help. Jason Heath is a fee-only, advice-only certified financial planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever. He can be reached at jheath@ Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
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EDITORIAL: Meeting NATO's 2% target the right move
Provided it is done competently, we agree with Prime Minister Mark Carney's announcement Monday that Canada, at long last, will meet its NATO commitment to increase military spending to 2% of gross domestic product (GDP) in this fiscal year. That's five years ahead of Carney's previous promise to meet the 2% target by 2030. We're so far behind — Canada currently spends 1.4% of GDP on defence annually — that NATO is already considering a new target for member nations to spend 5% of GDP on defence. Canada's failure to meet the 2% target, set by NATO in 2006, has been a long-standing national embarrassment. It has eaten away at our credibility and our effectiveness on issues of global security and international conflicts. It has justifiably upset many of our NATO allies for not pulling our own weight and, most recently, angered U.S. President Donald Trump who, on this issue, has a valid point. At the end of the Second World War, Canada had the world's fourth-largest navy after the U.S., U.K and former Soviet Union. At the end of the Korean War, Canada was spending 7% of GDP on defence. Today, we have members of our military relying on food donations to make ends meet while being sent into armed conflicts — where they continue to serve honourably — with aging and obsolete equipment. This is a national disgrace. Canada's submarines, ships, aircraft, military vehicles and artillery are all in desperate need of upgrading, as is our military presence in the Arctic, given the growing interest in its mineral resources by hostile countries such as Russia and China. No country can claim to be a sovereign nation unless it has the ability to monitor and, where necessary, counter incursions into its territory. Our concern is with Carney's pledge to 'ensure that every dollar is invested wisely, including by prioritizing made-in-Canada manufacturing and supply chains.' EDITORIAL: Jobless numbers spell trouble EDITORIAL: Fighting wildfires a national priority That's not because of the intent — we agree with it — but because there are so many examples of military spending that have turned into fiascoes and boondoggles by previous governments. We're also concerned that Carney is making this major announcement on defence spending in advance of this year's federal budget and how the increased spending on defence will impact the government's overall finances.
