Federal budget falls short on pharmacare and savings: experts

The federal government’s latest 2026 budget, released on Thursday and the second under Prime Minister Mark Carney, bears the He-Man-esque title “Masters of our Destiny”. But for the pensions and benefits industry, the budget largely misses out on that theme.

The budget's biggest issue, according to one benefits consultant, is the continued silence on national pharmacare. David White, vice president of benefits consulting at HUB International in Vancouver, said plan sponsors are being forced to make decisions without knowing where the program is headed.

“You're putting people that run plans into trying to make decisions in a vacuum,” said White. “There’s only three entities that can pay for prescription drug costs. It’s coming from employers. It’s coming from the government or it’s coming out of someone’s pocket.”  

As it stands currently, pharmacare is active in only four provinces and the expert committee's report has drawn no response from the current government.

At minimum, he wants to see either new funding or a commitment to extend the program beyond its initial five-year window. Without that, the $1.5 billion already committed will run its course and the program will quietly expire, he noted.

“It’s a very limited and basically temporary program that’s in effect right now, which is nowhere close to what the intentions seem to have been at the time that the legislation passed,” he said.

Meanwhile, Alex Mazer, CEO and co-founder of Toronto-based Common Wealth, argued the government’s own priorities - affordability, small business competitiveness, fiscal discipline - all point toward retirement savings incentives it chose not to pursue.

“One thing that was not in the budget was any kind of incentive for employers to set up plans or for individuals to save and build wealth,” said Mazer. “The government talks a lot about the affordability agenda, and we believe strongly that encouraging savings should be a part of the affordability agenda so we’re hoping to see that in future budgets. Shifting some of the cost from pay-as-you-go programs like OAS to private savings would really help, I think, reduce future costs,” he said.

Despite Common Wealth putting forward a small employer retirement plan tax credit for consideration earlier this year, it was absent from this year’s budget.

2026 budget misses chance to expand workplace savings access

One area where Mazer saw progress was the proposed RRSP for Life, which would phase out mandatory RRIF withdrawals. He called the RRIF a structure “that should never have existed in the first place.”

“In our experience, very few people really understand RRIFs and how they work,” he said. “I think if you were creating a system from scratch, RRSP for life makes a lot of sense.”  

Mazer said the RRSP for Life proposal should push plan sponsors to stop treating retirement as the end of their responsibility. Too many sponsors dismiss the post-retirement experience because the employee has already left the company, but he called that thinking shortsighted — employees evaluating a plan want to know it will support them after they stop working, not just while they’re contributing.

“How do you help them move that into one place and then get a steady paycheck in retirement in a way that optimizes for taxes and government benefits?” he said.

Yafa Sakkejha, CEO at Beneplan in Toronto, pointed to growing demand from business owners who want to cover aging parents through their benefit plans but face restrictive CRA definitions of eligible dependents. Under existing rules, plan members can add a spouse and dependent children, including legally adopted or guardian children, but not their own parents, she noted.

“There is a caregiver burnout as it pertains to caring for the aging elderly population, and we care about this group,” she said.

To that end, the federal government has proposed that the Canada Caregiver Credit becomes fully refundable starting in 2027, worth up to $1,260 a year and indexed after that. The budget estimates 585,000 caregivers would receive support, including 180,000 who get no benefit today, and that 15,000 people would be lifted out of poverty.

Mazer pointed to an existing program as proof that targeted savings incentives can work. Common Wealth’s partnership with SEIU Healthcare on the PSW Savings Bonus has reached more than 2,000 personal support workers who have accessed government-backed savings incentives through the program. He believes the government deserves credit for that initiative, but the opportunity is to scale the model.

“That’s the type of program that the government could build on in providing other savings incentives for parts of the economy that aren’t covered by pensions,” he said.

Sakkejha also called for clearer CRA rules around private health services plans for shareholder-employees. Business owners want to run larger health expenses through their plans, but they have no concrete guidance from the CRA on what qualifies as reasonable, she said. She suggests the current guidelines aren’t clear to give business owners confidence.

“The rules right now are very vague and they’re so vague that people are saying ‘It’s too risky. I don’t want to do it. I don’t want to bring on an audit,’” she said.

Fiscal guardrails earn high marks from institutional investors

The federal government has pledged this year's budget to be an ‘investment supercycle’, particularly as it focuses on affordability and business investment, despite the government having budgeted $142.1 billion in extra spending to spur the Canadian economy.

Paul Taylor, vice president and portfolio manager at Mackenzie Investments in Toronto, acknowledged the trade-off at the heart of the budget: flatlining the deficit still means the total stock of Canadian debt will grow, and debt servicing costs will consume a larger share of federal revenues. He framed the 2026 budget around a three-legged stool: sovereignty, affordability, and fiscal prudence. On the first leg, the government delivered, he said.

“If you don’t have one of those three legs, the stool falls over,” he said, adding the government has to spend to generate growth, even if it means carrying more debt.

BeiChen Lin, Seattle-based head of Canadian strategy at Russell Investments, agreed.

“The fact that the budget is relatively stable is something that should probably help to alleviate concerns by people who were wondering what the recent economic stress in Canada might mean for the debt,” he said, noting that long-term government bond yields should stay contained.

For Lin, the budget is built around a medium-term growth strategy rather than short-term relief. He pointed to the productivity mega deduction which will allow eligible businesses to accelerate CapEx write-offs, lowering effective tax rates and making Canada a more attractive destination for investment.

He believes the government’s bet is that medium-term growth measures, including tax cuts for entrepreneurs and accelerated capital expensing for businesses, will generate enough revenue to offset the spending. Whether that growth materializes as projected remains an open question.

“The budget announcement demonstrates that the government is still very much focused on one, trying to think about how they can stimulate growth over the medium term and two, to do it in a way that continues to be fiscally prudent,” said Lin.

According to Lin, smaller businesses stand to gain as well through expanded capital gains exemptions on business sales and the option to defer capital gains taxes by reinvesting proceeds into another Canadian enterprise.

Apart from one-off measures like bumps to grocery tax benefits, the budget’s weight sits squarely on the longer horizon, Lin suggests, adding that has two consequences. It should boost productivity and growth over time, but it also means fiscal policy is doing little to cushion the economy in the near term.

Lin suggests that gap leaves monetary policy to pick up the slack, and he sees limited room for the Bank of Canada to raise rates further.  Even though markets are pricing in a terminal rate of 3.1 per cent, he expects the BoC will have difficulty pushing above its own 2.75 per cent neutral rate estimate.

“[The budget] is really a series of very tailored, targeted measures. Even though the headline number sounds large, it's really tailored to try to think about how they can increase the growth rate for the Canadian economy in the long term. For people who are thinking about the safety of Canadian government bonds, it's a reassuring sign that Canada's government bonds still remains a relatively safe investment opportunity,” said Lin.