Carney’s bold budget bet: What you need to know about Budget 2025

Prime Minister Mark Carney’s first budget proposes a seismic $585.9 billion spending plan, aligning with the Liberal election platform in name and substance—Canada Strong. In contrast, Carney’s economic strategy differs substantially both on policy and politics from the Trudeau-era budgets. With seemingly no effort underway to woo an opposition supporter for the all-important confidence vote, Carney’s government is on the line for Budget 2025.

Key takeaways

Firstly, Budget 2025 shifts the federal government’s spending power from costly social and health supports, and programs to catalyzing private investment and productivity in targeted sectors. The investments are substantial: $81.8 billion over five years to the new Defence Industrial Strategy, $51 billion over 10 years to the new Build Communities Strong Fund, enabling access for major projects to $40 billion in capital, $13 billion over five years to housing, and over $15 billion over three to six years to supporting tariff impacted sectors and regions. In contrast, health and social program spending remains status quo, except for a new $5 billion Health Infrastructure Fund as part of the new infrastructure program.

Secondly, in addition to major investments noted above, with details further below, the budget includes significant operational reductions. The federal government has executed its plan to implement a new budgetary framework, separating the budget into components: operational expenditures and capital investment. Following the government-wide Comprehensive Expenditure Review, Budget 2025 proposes to reduce operational spending by $9 billion in 2026-27, $10 billion in 2027-28 and $13 billion in 2028-29. Combined with other savings and revenues in Budget 2025, this will total $60 billion over five years, starting in 2025-26. The operational reductions are not limited to program spending—aiming for “a more sustainable public service size,” the public service will decline by about 40,000 full-time equivalents or 10 per cent from the 2023-24 peak.

Another key issue to be addressed in Budget 2025 is the potential for an oil pipeline to be considered a major project ahead. Having promised the next tranche of major projects announced before the Grey Cup Nov. 16, the budget offers mixed signals. While promising a new Climate Competitiveness Strategy, Budget 2025 leaves questions unanswered. It includes commitments to modifying existing instruments such as improving the effectiveness of the industrial carbon price, working with provinces/territories on the Clean Electricity Regulations, and importantly, a contingent commitment to walking back the Oil and Gas Emissions Cap.

Finally, Prime Minister Mark Carney has been unequivocal in this budget gamble, stating emphatically that he is “100 per cent confident that this budget is the right budget for this country.” Whether he would be willing to go to election, he has said, “I'm always prepared to stand up for the right thing.” While opposition parties attempted to negotiate with the federal government, seeking budget promises in exchange for their support in the confidence vote, Carney’s Liberals have not responded to these pressures. While the Liberals have gained a much-needed vote, following yesterday’s floor crossing by now former Conservative MP Chris d’Entremont, the party is still two votes shy of passing the budget. With Conservative and Bloc Leaders staunchly against supporting the budget, hopes have turned to the NDP to avert an early winter election. The days ahead will reveal this outcome.

Budget 2025: major spending priorities

Defence Industrial Strategy

Delivering on Prime Minister Carney’s commitment to achieve the 2% NATO target this fiscal year, Budget 2025 proposes to provide $81.8 billion over five years on a cash basis, starting in 2025-26, to rebuild, rearm, and reinvest in the Canadian Armed Forces (CAF), including $20.4 billion over five years to recruiting and retaining the forces, $19 billion over five years to repair and sustain CAF capabilities, and $17.9 billion over five years to expand military capabilities.

Infrastructure

Budget 2025 proposes $51 billion over 10 years, starting in 2026-27, and $3 billion annually ongoing to a new Build Communities Strong Fund. This sizeable fund will include three main components:

• A Provincial and Territorial Stream that will provide $17.2 billion over 10 years, starting in 2026-27, to support provincial and territorial infrastructure projects and priorities, of which $5 billion is earmarked for a Health Infrastructure Fund.
• A Direct Delivery Stream that will provide $6 billion over 10 years, starting in 2026-27, to support regionally significant projects, large building retrofits, climate adaptation, and community infrastructure.
• The Community Stream will provide $27.8 billion over 10 years, starting in 2026-27, and $3.0 billion per year ongoing to support local infrastructure projects.

Major projects

Budget 2025 reiterates the federal government’s commitment to fast-tracking nation building projects and announces the government’s intention for the Major Projects Office (MPO) to help structure and co-ordinate financing, including through the Canada Infrastructure Bank, Canada Growth Fund, and Canada Indigenous Loan Guarantee Corporation. The budget indicates $40 billion in capital that is ready for investment. CIB’s capital envelope will be increased from $35 billion to $45 billion.

Housing

$13 billion over five years, starting in 2025-26, for Build Canada Homes to deploy capital to supercharge the housing industry. Build Canada Homes will achieve the objective of doubling housing construction and improving affordability by leveraging public land sites, launching the $1.5 billion Canada Rental Protection Fund, providing $1 billion to build transitional and supporting housing, and partnering with the Nunavut Housing Corporation to build over 700 units.

Tariff Response

Tariff response measures such as $10 billion financing facility, the Large Enterprise Tariff Loan, supporting firms impacted by tariffs; $5 billion over six years, starting in 2025-26, for the Strategic Response Fund; and, $1 billion over three years, starting in 2025-26, for the Regional Tariff Response Initiative. Additionally, Budget 2025 proposes $639 million over five years, starting in 2025-26, towards measures supporting agriculture, fish and seafood sectors alongside $1.2 billion in targeted measures to the forestry and softwood lumber sector.

Other Investments

• Productivity Super-Deduction: a package of productivity incentives aiming to reduce Canada's marginal effective tax rate (METR) by more than two percentage points. This includes accelerated capital cost allowances, reinstating the Accelerated Investment Incentive, and enhancements to the scientific research and experimental development (SR&ED) program.
• Supply chains: $5 billion over seven years, starting in 2025-26, to create the Trade Diversification Corridors Fund, to strengthen supply chains, including digital infrastructure.
• Critical minerals: $2 billion over 5 years, starting in 2026-27, to Natural Resources Canada to create the Critical Minerals Sovereign Fund.
• Arctic infrastructure: $1 billion over four years, starting in 2025-26, to create the Arctic Infrastructure Fund, which will invest in major transportation projects in the North with dual-use applications for civilian and military use, including airports, seaports, all-season roads, and highways.
• AI: $925.6 million over five years to support large-scale sovereign public artificial intelligence infrastructure.
• Culture: $474 million to cultural investments in 2026-2027, including $150 million to the CBC, $48 million to the Canada Music Fund, and $150 million towards TeleFilm Canada.

What’s next?

NATIONAL’s Public Affairs team will be carefully assessing the advancement of the budget bill and vote in Parliament for any changes relevant to your business. While unlikely, an election call is feasible in light of the federal government’s minority status; as such, passage of the budget may be as simple as abstentions from the confidence vote or concessions to Party demands. Reach out to our team members for government relations expertise in navigating Budget 2025 ahead.