Prime Minister Mark Carney’s Liberal administration unveiled its inaugural budget on Tuesday, ushering in “a new era of leadership and a new economic foundation.” The 406-page report outlines significant cuts and investments aimed at stimulating growth and productivity in the face of trade uncertainties and a sluggish economy.
Key points from the Liberals’ 2025 budget:
Top-line figures:
The budget forecasts a deficit of $78 billion for the fiscal year 2025-26, expected to decrease to $65 billion in the following year and gradually drop to $57 billion by 2029-30. Operational spending is set to be balanced within three years.
The budget outlines around $141 billion in new spending over the next five years, partly offset by cuts and savings. However, this year’s deficit surpasses the $42 billion target set by the previous Liberal government and what the Conservatives were willing to support.
Streamlining government and reducing expenditures:
Ottawa has conducted a thorough expenditure review to trim federal government operating expenses. The plan aims to save $13 billion annually by 2028-29, totaling $60 billion over five years when combined with other savings and revenues.
The budget prioritizes diverting more taxpayer funds towards nation-building infrastructure, clean energy, innovation, and productivity rather than day-to-day operating expenses. This shift in focus is intended to safeguard social benefits.
The public service is anticipated to see a reduction of around 40,000 positions in the coming years, with employee numbers projected to decrease to 330,000 by 2028-29 from the previous count of 368,000.
Boosting growth and competition:
To address the sluggish economic landscape, the government aims to “supercharge growth” and enhance Canada’s investment climate to outpace the U.S. The budget introduces a “productivity super-deduction” tax measure enabling companies to accelerate write-offs for capital investments.
Additional measures are introduced for writing off expenses related to manufacturing or processing buildings and creating a new capital cost allowance for liquefied natural gas (LNG) equipment and associated structures.
Infrastructure development:
Since the onset of the Liberal leadership race, Prime Minister Carney has pledged speedy project execution in Canada. The budget allocates $214 million over five years, targeting approval for critical mineral projects and accelerating the commencement of construction on the high-speed rail line from Toronto to Quebec City within four years, instead of the initial eight-year plan.
Moreover, $51 billion over a decade is earmarked for local infrastructure, including housing, roads, water systems, and health facilities, with the aim of generating numerous employment opportunities.
Reduced immigration targets:
In a bid to alleviate pressures on Canada’s housing and healthcare systems, the government plans to lower admission targets for newcomers. The proposed plan seeks to significantly decrease temporary resident admissions from 673,650 in 2025 to 385,000 in 2026.
Permanent resident admission targets are set to remain at 380,000 annually for the period of 2026-28, down from 395,000 in 2025. Additionally, a one-time initiative is proposed to expedite the transition of up to 33,000 work permit holders to permanent residency in 2026 and 2027.
To address labor shortages, the Liberal strategy includes a foreign credential recognition action fund to enhance the recognition process for foreign credentials in collaboration with provinces and territories. It also includes an initiative to recruit over a thousand highly qualified international researchers to Canada.
Increased defense spending:
The budget commits to a substantial boost in defense spending, aligning with NATO targets. A total of $81.8 billion is allocated for defense over five years, with approximately $72 billion comprising new funding.
Noteworthy allocations include over $20 billion for recruiting and retaining Canadian Armed Forces members and an additional $19 billion to sustain CAF capabilities and invest in defense infrastructure. The Communications Security Establishment will also receive significant funding to enhance its digital infrastructure for modern warfare, including cyber defense capabilities.
Rethinking oil and gas emissions regulations:
The budget addresses the potential elimination of the oil and gas emissions cap, emphasizing the importance of effective carbon markets and technology deployment like carbon capture and storage to obviate the need for such a cap.
Support for CBC/Radio-Canada and Eurovision spotlight:
Budget 2025 proposes $150 million for CBC/Radio-Canada to enhance its public service mandate and better reflect Canadians’ needs. The government also hints at modernizing the broadcaster’s mandate to bolster independence and explores potential participation in the Eurovision Song Contest.
Removal of high-end taxes:
The government announces the elimination of two high-end taxes, namely the underutilized housing tax on vacant or underused properties and the luxury tax on aircraft priced over $100,000 and boats priced over $250,000. These measures are intended to simplify the tax system and reduce compliance costs for taxpayers and administrative expenses for the government.