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The federal budget is coming on November 5 and, in contrast to other recent budgets, there have been relatively few leaks indicating what will be in it. However, there have been plenty of expensive announcements since the spring fiscal update. We know this is a moment where federal investments to buffer the headwinds of Trump’s tariffs and secure sovereignty will exact a price. But by whom and for whom?
The biggest of which, by far, is the new “productivity mega-deduction” announced in September. It’s effectively a massive corporate tax break worth $36 billion over five years—over $7 billion a year. Broadly, it allows companies to write off almost all capital investments immediately, then the feds may (or may not) make up that loss in corporate taxes over time. See the full details in our previous analysis.
There was a previous, similar tax cut in budget 2025, called the “productivity super deduction.” The “super” version was targeted and would cost roughly $400 million a year. It was also temporary. It applied to all manufacturing purchases of machines and equipment as well as covering clean tech, electric cars and some digital assets, along with come (not so) clean LNG and Carbon Capture and Storage (CCS). The “mega” version applies to almost all capital spending outside of residential and non-industrial construction. As a result, the scale is different. The mega is 20 times larger, at over $7 billion a year compared to $400 million for the “super” version.
Who specifically is getting all that money?
First of all, no public company or crown corporation will be eligible to claim any of these tax breaks. The deduction only applies to private companies that pay corporate income taxes. Private companies that aren’t making a profit don’t get anything from this either. So, if you’re equipping a university tech lab, buying medical equipment for a hospital, extending the electrical grid as a public utility, you get nothing.
The “super” deduction already provided almost all of these benefits for the manufacturing sector, so that sector gets no additional benefit from the “mega” version. On the construction side, the mega deduction only really applies to construction of industrial buildings and not to things like offices, data centres, research labs, arenas, hotels, restaurants. Although any new equipment for those structures are eligible.
Once you make those adjustments to the capital spending accounts, Figure 1 estimates the annual benefits, by industry, of the mega deduction. By a long shot, the biggest beneficiary is the oil and gas industry, which will get just over $2 billion more a year than 22 other major industries—almost a third of every dollar. The three sectors of transportation/warehousing, construction, and mining would each get about $800 million a year. Construction includes new oil pipelines projects, but those can’t be pulled out separately. Utilities, and this is only the private sector side because public sector investments get nothing, would see $550 million in benefits.
Across the 23 major industries examined, 40 per cent of the benefits go to the oil & gas and mining sectors.
It won’t be a surprise to Canadians that the oil & gas sector is seeing record profits from high oil prices and doesn’t need more expensive tax breaks. Before the Iran war in the first quarter of 2026, oil & gas extraction made $7.4 billion in pre-tax profits over three months; in the second quarter, with war in full swing, those profits more than doubled, to $16.9 billion. On the oil refining side, profits skyrocketed, from $5.6 billion in the first quarter to $10.5 billion in the second. All that money in higher gas and diesel prices is going somewhere: oil & gas profits.
This sector is doing just fine transforming high gasoline prices into record profits and doesn’t need a corporate tax break. If anything, we should be taxing their extraordinary profits more, not giving them a tax break.
With any tax break, much of what the federal government will spend will be a “dead weight loss”, which is to say that companies were going to make these anyway and so we’ll be paying for no real change in investment. When the “mega” deduction induces new investment at the margins, it will be in the wrong places. Notably more investment in fossil fuel and mining infrastructure, with exception of some specialized battery minerals. These are exactly the wrong places to build, given the climate emergency.
What else could we do with $7 billion a year?
Our recently released Alternative Federal Budget has got plenty of better ways to spend $7 billion a year: Invest in a major affordability plan.
- We could create a basic income for Canadians living in poverty of working age ($9 billion).
- We could lift 330,000 children out of poverty by improving the Canada Child Benefit ($6.3 billion).
- We could fund a major improvement in primary care ($5.2 billion).
- We could massively improve the Canada Student Grant program for post-secondary students ($5.2 billion).
- We could make major investments in a clean electricity grid ($6.2 billion).
- Properly fund $10-a-day child care expansion ($4 billion).
- Ensure seniors receive a minimum standard of care in long-term care ($4.6 billion)
Budgets are about choices, not economics. If economic growth is your goal, transfers to low-income Canadians will have a much higher benefit than corporate tax cuts on economic growth. If employment is your goal, investments in health care, long-term care and $10-a-day child care yield much more jobs than boosts in already high corporate profits. If addressing the cost of living is your goal, there are definitely things governments can do: help support those hardest hit, lower costs for post-secondary education, improve access to low-cost services like affordable child care.
The productivity mega deduction doesn’t do that—instead, it turbocharges profits for the oil and gas industry, who have already been making a killing off wartime price inflation. That, too, is a choice.
About the author
David Macdonald
David joined the CCPA as its Senior Ottawa Economist in 2011, although he has been a long time contributor as a research associate. Since 2008, he has coordinated the Alternative Federal Budget, which takes a fresh look at the federal budget from a progressive perspective. David has also written on a variety of topics, from child care to income inequality to federal fiscal policy. He is a regular media commentator on national policy issues, often speaking to the CBC, Globe and Mail, Toronto Star and Canadian Press. David received his BA from the University of Windsor and his MA from the University of Guelph, both in Philosophy. Follow David on Bluesky at @davidmaccdn.bsky.social
