- Budget 2025 shifts federal fiscal strategy toward investment-led growth by nearly doubling annual capital outlays from about CAD $32B to about CAD $60B by 2029-30 under a new capital budgeting framework.
- Deficits jump to about CAD $78B in 2025-26 then ease to about CAD $57B by 2029-30, while the debt-to-GDP ratio is projected to stay roughly stable near 41–43%.
- Debt-servicing costs rise sharply, from about CAD $54B in 2024-25 to about CAD $76B by 2029-30, driven by higher rates and larger borrowing needs.
- Tax credits, procurement preferences, and industrial policy steer funds to priority sectors (e.g., clean energy, manufacturing, defense, R&D), boosting growth potential but raising risks of distortion and politicized project selection.
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Budget 2025 represents a strategic pivot in federal fiscal policy towards investment-led growth. The new Capital Budgeting Framework is central to this, clearly demarcating capital investment (tax incentives, infrastructure transfers, etc.) from operating spending, in an effort to focus federal resources on building long-lived productive assets rather than recurring obligations. This aligns with the government’s fiscal anchor of balancing operating spending with revenues by 2028-29.
The projected near-term fiscal costs, however, are steep. Public debt charges—expenses associated with servicing the national debt—are expected to rise from approximately CAD $53.7 billion in 2024-25 to around CAD $76.1 billion in 2029-30, growing from 1.8 % of GDP to over 2 %. Higher interest rates and larger borrowing needs (CAD $623 billion to be raised in 2025-26) drive much of this increase.
The deficit spikes to about CAD $78.3 billion in fiscal 2025-26 before declining toward CAD $56.6 billion by 2029-30; however, the budget focuses on reducing the deficit ratio rather than shrinking the stock of debt. The debt-to-GDP ratio is projected to remain stable around 41-43 % through the horizon.
The policy tilt is unmistakable: specific sectors—defense, clean energy, manufacturing, housing, AI/R&D—are beneficiaries through enhanced tax credits, procurement preferences, and government-led investment. While this approach can catalyze growth in targeted areas—especially where Canada has comparative advantages—it also risks inefficient allocation, political bias, and burdening projects with non-economic criteria (e.g., domestic sourcing, DEI mandates).
Strategic risks include: (a) the ability to realize projected savings in operating expenses (about CAD $60 billion over five years) without undermining essential services; (b) ensuring private sector capital flows respond to government inducements rather than being crowded out; (c) maintaining flexibility if macroeconomic or interest conditions worsen; and (d) the transparency and accountability of “political pickings” when choosing ‘priority’ projects under new criteria.
Opportunities lie in: modernizing defense supply chains and meeting NATO 2 % target ahead of schedule; accelerating infrastructure projects; leveraging tax incentives to raise private investment; and improving Canada’s economic resilience via higher productivity and diverse sector growth. If successful, real GDP could be ~3.5 % higher by 2030 relative to baseline projections, with average per capita gains.
Supporting Notes
- Annual capital investment jumps from CAD $32.2 billion in 2024-25 to CAD $59.6 billion in 2029-30, nearly doubling.
- Public debt charges rise from CAD $53.7 billion in 2024-25 to CAD $69.4 billion by 2029-30 (per earlier forecasts) and further to CAD $76.1 billion in the Budget’s projections.
- Deficit forecast: CAD $78.3 billion in 2025-26, declining toward CAD $56.6 billion by fiscal 2029-30.
- New spending over five years totals about CAD $141 billion, offset in part by CAD $51 billion in cuts and efficiency savings.
- The Comprehensive Expenditure Review (CER) aims for approximately CAD $60 billion in savings over 5 years, including CAD $13 billion annually by 2028-29.
- Budget 2025 projects generating over CAD $1 trillion in total investment over five years, through government capital investment, private sector leveraging, tax incentives, and infrastructure stimulus.
- Targeted sectors include infrastructure ($315 billion), private R&D ($210 billion), housing ($130 billion), industrial development programs ($270 billion), accelerated depreciation & expensing ($60 billion), and clean energy & other tax incentives ($95 billion)—totaling about CAD $1,080 billion over five years.
- Borrowing needs in 2025-26: CAD $623 billion expected (principal), with 76 % used to refinance maturing debt.
- Operating spending growth constrained to average under 1 % annually over the forecast period, compared to ~8 % over the previous decade.
- Defense investment increases by CAD $9 billion in the current year, with long-term commitments to expand domestic supply and defense industrial capacity.