Scenario Planning in an Era of Radical Uncertainty: The Imperative for Adaptive Fiscal Frameworks in Carney's Fall Budget

Introduction

Prime Minister Mark Carney's commitment to present a federal budget in fall 2025—made amid intense political pressure from opposition parties and media scrutiny—represents a critical juncture in Canadian fiscal governance. The nearly 400-day absence of a comprehensive budget has fueled accusations of planning deficiency and fiscal irresponsibility, compelling the government to defend its timeline decision. Within this charged political context, this essay argues that the government now faces both a challenge and an unprecedented opportunity: to transform what critics have framed as procrastination into a demonstration of fiscal sophistication through the development of a multi-scenario budget framework.

Rather than merely responding to political pressure with a conventional budget, the Carney administration can leverage this moment to introduce a more nuanced approach to fiscal planning—one that explicitly acknowledges what economists term "Knightian uncertainty" in the current economic landscape. The necessity for such an approach transcends political expediency; it represents a substantive methodological response to genuine economic complexities. The upcoming fall budget must therefore be constructed not as a defensive political document but as an adaptive fiscal framework that systematically addresses various potential scenarios for Canada's economic trajectory, particularly regarding the persistent global tariff tensions and the accelerating but unevenly distributed implementation of AI technologies across economic sectors.

Beyond Traditional Budget Frameworks: The Case for Scenario Planning

Traditional budget frameworks operate under the assumption that economic conditions follow predictable patterns with manageable levels of variance. They typically present a single baseline scenario with modest adjustments for upside and downside risks. This conventional approach—the very approach demanded by opposition critics claiming that "a budget is a plan"—may paradoxically prove inadequate for the complex economic environment facing Canada in 2025. The political insistence on rapidly producing such a document reflects an underappreciation of the substantive methodological challenges in contemporary fiscal forecasting.

The economic landscape confronting Canadian policymakers now defies conventional fiscal approaches. The combination of persistent global tariff tensions, technological disruption through AI advancement, and domestic challenges such as the housing affordability crisis creates an environment of fundamental uncertainty—one where the range of possible outcomes itself is difficult to define, let alone assign probabilities to. The political demand for budgetary certainty thus collides with economic reality that resists such certainty.

This distinction between risk (where probabilities can be calculated -- known unknowns) and uncertainty (where they cannot -- unknown unknowns) was famously articulated by economist Frank Knight, and the current economic landscape epitomizes what is termed "Knightian uncertainty." The global tariff war has destabilized established trade patterns, creating unpredictable shifts in supply chains and production locations. Meanwhile, AI technologies are transforming productivity frontiers and labor markets at uneven rates across sectors, making traditional productivity projections increasingly unreliable. The housing market represents another domain of uncertainty, with complex interactions between supply constraints, monetary policy, and changing demographic patterns.

In this context, scenario planning becomes not merely helpful but essential. Rather than pretending to know with precision how these various forces will evolve, an adaptive budget would explicitly acknowledge multiple potential scenarios and articulate fiscal responses for each. This approach recognizes what economist John Kay calls "radical uncertainty"—situations where the future cannot be understood as a statistical distribution of possibilities derived from past experience. The fall budget must therefore move beyond point forecasts to embrace a range of possible economic futures, each requiring different fiscal calibrations.

The Structural Advantages of Temporal Space

While critics have characterized the budget delay as an administrative failure, a more nuanced analysis reveals that the period between now and the fall presentation creates valuable "temporal space" for the development of a more sophisticated fiscal framework. Far from representing governmental negligence, this interval offers several structural advantages that would be sacrificed in a hastily assembled budget produced within what Carney correctly identified as "a very narrow window—three weeks—with a new cabinet [and] effectively a new finance minister":

First, it allows for more extensive data collection on the impacts of the middle-class tax cuts already anounced. These real-world observations will provide crucial information about household spending patterns, consumption elasticities, and sectoral effects that can inform more targeted fiscal interventions in the comprehensive budget.

Second, the additional months will provide greater clarity on the evolving dynamics of the global tariff war. International trade patterns are currently undergoing significant restructuring, with companies adjusting supply chains and production locations in response to changing tariff structures. These adjustments are not instantaneous but unfold over multiple quarters, making observations of their effects pattern valuable for budget planning.

Third, the delay creates space for more systematic assessment of sectoral AI adoption rates and productivity impacts. The economic effects of AI implementation follow what economists Brynjolfsson and McAfee describe as a "productivity J-curve," where initial implementation costs mask eventual productivity gains. The additional months will allow for better differentiation between sectors experiencing early productivity benefits and those still in the investment phase, enabling more nuanced fiscal responses.

Fourth, the housing market—identified by Carney as a key priority—exhibits significant lags between policy implementation and market outcomes. The temporal space created by the budget delay allows for initial observations of how the government's proposed GST cuts on new homes and development charge reductions affect construction activity and housing affordability, informing more targeted interventions in the comprehensive budget.

These structural advantages are not merely administrative conveniences but essential components of responsible fiscal management in an uncertainty-laden environment. They enable what economist Albert Hirschman called "the principle of the hiding hand"—the ability to learn from initial interventions before committing to broader strategies.

The Imperative of Multiple Scenario Frameworks

The fall budget must explicitly incorporate multiple scenario frameworks for Canada's economic trajectory. These scenarios should not be mere sensitivity analyses but substantively different economic narratives with varied fiscal implications. At minimum, the budget should articulate:

1. A persistent tariff war scenario that assumes continued or escalating trade tensions, with associated inflationary pressures and sectoral dislocations. This scenario would require targeted fiscal support for affected industries, enhanced worker retraining programs, and potentially more aggressive revenue measures to maintain fiscal sustainability amid lower growth.
2. A tariff de-escalation scenario that envisions gradual normalization of trade relations, with associated opportunities for export growth and supply chain reintegration. This scenario might enable more growth-oriented fiscal measures and targeted investments in export capacity.
3. An accelerated AI adoption scenario that anticipates faster-than-expected productivity gains in key sectors, with associated labor market disruptions. This scenario would require significant investments in worker transition programs, digital infrastructure, and potentially a rethinking of tax structures to capture the benefits of productivity growth.
4. A delayed AI productivity scenario that recognizes the possibility that AI's productivity benefits may take longer to materialize than technologists predict, creating extended periods of investment without immediate returns. This scenario would necessitate patience in fiscal planning and potentially greater support for innovation ecosystems.
5. A housing market correction scenario that contemplates the possibility of significant price adjustments in overheated real estate markets. This scenario would require contingency plans for financial stability measures and potentially accelerated public housing investments.

Each scenario would require different fiscal calibrations, revenue projections, and expenditure priorities. By explicitly acknowledging these alternatives, the budget can incorporate what decision theorists call "robust decision making"—identifying policies that perform reasonably well across multiple possible futures rather than optimally in just one.

Beyond Technical Forecasting: The Political Economy of Scenario Planning

The incorporation of scenario planning into budget frameworks has implications beyond technical forecasting—it represents a fundamental shift in the political economy of fiscal policy. Traditional budget processes often incentivize overconfidence in projections and underestimation of uncertainties, as politicians seek to project certainty and control. By explicitly acknowledging multiple potential futures, scenario-based budgeting introduces a more nuanced approach to fiscal communication.

This approach aligns with what political economist Albert Hirschman termed "a bias for hope"—maintaining optimism about possibilities while realistically acknowledging constraints and uncertainties. It allows the government to articulate fiscal priorities and values while simultaneously recognizing the limits of economic prediction. This combination of normative clarity and empirical humility offers a more sophisticated fiscal framework than traditional budget processes that feign precision in an uncertain world.

Moreover, scenario planning creates space for what economist Amartya Sen calls "public reasoning" about fiscal priorities. By making explicit the different possible economic futures and their implications, the government invites broader societal deliberation about how resources should be allocated under various conditions. This deliberative dimension enhances democratic engagement with fiscal policy beyond the technocratic exercise it often becomes.

The housing market exemplifies this need for scenario-based thinking. Carney's stated goal that "house prices be more affordable to Canadians" requires different policy calibrations under different economic scenarios. In a scenario of rising interest rates and economic slowdown, affordability might be pursued through targeted subsidies and credit support. In a scenario of continued low rates and strong economic growth, supply-side measures and macroprudential policies might be more appropriate. By explicitly acknowledging these scenario dependencies, the budget can create a more adaptive housing policy framework.

Implementation Mechanisms for Adaptive Fiscal Policy

For scenario planning to be more than a theoretical exercise, the fall budget must incorporate specific mechanisms for policy adaptation as uncertainties resolve. These mechanisms might include:

1. Explicit fiscal triggers that automatically adjust certain spending or tax measures when predetermined economic indicators cross specified thresholds. For example, additional support for tariff-affected industries might be triggered when sectoral employment indicators fall below certain levels.
2. Scheduled policy reviews at predetermined intervals to reassess which economic scenario is unfolding and adjust fiscal measures accordingly. These reviews would be more structured and consequential than typical economic updates.
3. Contingent fiscal authorities that grant the finance minister limited discretion to implement pre-approved measures if specific economic conditions materialize. This approach balances democratic oversight with implementational flexibility.
4. Sectoral transition funds that can be deployed flexibly as AI adoption creates uneven impacts across industries. These funds would operate as fiscal stabilizers specifically designed for technological transitions.
5. Multi-year implementation pathways for major initiatives that include explicit decision points where program details can be adjusted based on emerging evidence. This approach recognizes that major fiscal initiatives often unfold over multiple years and require periodic recalibration.

These mechanisms transform scenario planning from an analytical exercise into an operational framework for adaptive fiscal policy. They institutionalize what economist Charles Lindblom called "muddling through"—the practice of incremental policy adjustment based on continuous learning and feedback. However, unlike traditional incrementalism, these mechanisms operate within a strategic framework that maintains overall fiscal coherence.

Addressing the Critics: Defending Adaptive Fiscal Policy

Opposition criticism of the budget timeline has generally framed the delay as procrastination, administrative incompetence, or political opportunism—characterizations that fundamentally misapprehend both the theoretical sophistication of adaptive fiscal approaches and the profound nature of economic uncertainty facing Canada. The political discourse surrounding the budget reflects what economist Daniel Kahneman would identify as "overconfidence bias"—the tendency to overestimate the reliability of our judgments, particularly in complex domains.

The opposition claim that a quickly produced budget inherently represents superior fiscal responsibility assumes that speed is more important than substance—a questionable assumption when economic conditions are changing rapidly and uncertainty pervades multiple economic domains. As Carney noted in his defense of the timeline, "there's not much value in trying to rush through a budget in a very narrow window." This statement, rather than representing a casual attitude toward fiscal management, reflects a sophisticated understanding of the limitations of traditional budget processes in uncertainty-laden environments.

Critics also often fail to appreciate the distinction between fiscal transparency and fiscal rigidity. Transparency does not require premature commitment to specific projections that may quickly become obsolete. Rather, it requires honest acknowledgment of uncertainties and clear articulation of how fiscal policy will adapt as these uncertainties resolve. A budget that explicitly incorporates scenario planning provides greater transparency about the government's reasoning than one that presents artificial certainty.

Furthermore, the criticism that the budget delay represents unprecedented fiscal negligence overlooks historical precedents for adaptive fiscal approaches during periods of significant economic uncertainty. During major economic transitions, including post-war reconstructions and responses to the 2008 financial crisis, governments have often adopted more flexible fiscal frameworks that prioritize adaptability over rigid adherence to predetermined plans.

Conclusion: Embracing Complexity Through Fiscal Adaptability

The political necessities that have compelled Prime Minister Carney to commit to a fall 2025 budget presentation may inadvertently create the conditions for fiscal innovation. The Canadian economy faces multiple interacting uncertainties—from global tariff tensions to AI-driven productivity shifts to housing market complexities—that traditional budgetary approaches are ill-equipped to address. In this environment, the conventional wisdom that equates budgets with plans risks creating false certainty and constraining the government's capacity to respond adaptively as conditions evolve.

The intervening period between now and the fall budget presentation offers an opportunity to transform a political vulnerability into a methodological strength through the development of a sophisticated, scenario-based fiscal framework. Rather than viewing this period as merely a concession to administrative realities—as some have interpreted the Prime Minister's comments about the "narrow window" —it should be conceptualized as essential space for developing a qualitatively different approach to fiscal planning under conditions of radical uncertainty.

The true measure of fiscal responsibility in these uncertain times lies not in rigid adherence to traditional budget timetables but in developing fiscal frameworks capable of responding effectively to multiple potential futures. As Carney noted, "We will have a much more comprehensive, effective, ambitious, prudent budget in the fall... You do these things right and that's what we're going to do." Doing things right in an era of radical uncertainty requires moving beyond the illusion of precise forecasting to embrace the complexity of multiple potential futures.

The fall budget must therefore be judged not by its adherence to traditional forms but by its effectiveness in creating an adaptive fiscal framework capable of navigating the profound uncertainties of the current economic landscape. By incorporating explicit scenario planning, the Carney government can demonstrate a sophisticated approach to fiscal policy that acknowledges the limitations of economic prediction while maintaining clear normative objectives for Canadian prosperity.

In a world where economic uncertainty is the new normal, adaptive fiscal frameworks are not merely an option but a necessity. The fall budget represents an opportunity to institutionalize this adaptive approach and create a more resilient fiscal architecture for Canada's economic future.