Federal budget 2025: In focus

Key highlights:

Investment prioritized over deficit reduction

• A projected $78.3 billion federal deficit across 2025 and 2026, which represents a significant increase from the $42.2 billion deficit forecast in the December 2024 fiscal update.
• In 2026 and 2027, the projected deficit falls to $65.4 billion. It will continue to decline slowly for the next three years, reaching $56.6 billion by 2029 and 2030.
• New “fiscal anchors,” designed to maintain a declining deficit-to-GDP ratio, and balance day-to-day operating spending with revenues by 2028 and 2029. These are part of a new approach to distinguish day-to-day operational spending from long-term investments that strengthen our economy to provide further clarity to the government when making fiscal planning decisions.

$280 billion to bolster capital investments, competitiveness, defence, and home building

• $115 billion over five years, including a dedicated “Build Communities Strong Fund” to support local infrastructure projects.
• $110 billion toward regional economic development initiatives; support for emerging technology, such as AI, quantum and electric vehicles; a new “productivity super deduction;” and research and development incentives.
• $30 billion over five years toward “rebuilding, rearming, and reinvesting” in the Canadian Armed Forces. This includes the $9 billion Carney announced in June when he committed to reach NATO’s target of 2% of GDP spending this year.
• $25 billion in spending plans, in addition to $7 billion more over five years for the previously announced “Build Canada Homes” plan.

Program spending cuts and downsizing the public service

• Reduced government spending by $60 billion over five years through “restructuring operations, consolidating internal services and rightsizing programs to realize efficiencies.”
• Elimination of 16,000 public service positions. An additional 12,000 jobs cuts will come through attrition, including offering voluntary leave and early retirement incentive packages.
• Streamlined program delivery, while maintaining funding, for key social programs including childcare, dental care, pharmacare and old age security.

Climate and immigration targets reset

• “Immigration Levels Plan” to stabilize the number of permanent resident admission targets at 380,000 annually for the next three years.
• Strengthening the industrial carbon pricing system by working with provinces and territories to set a multi-decade industrial carbon price trajectory that targets net-zero by 2050.
• Tax credits: a new clean electricity investment tax credit; extended availability for the full carbon capture, utilization and storage investment tax credit; and an expanded list of critical minerals eligible for the clean technology manufacturing investment tax credit.

Other notable items:

• A previously announced middle-class tax cut from 15% to 14%, and the removal of GST on home purchases for new home buyers.
• Automatic tax benefits for up to 5.5 million low-income Canadians.
• One-time supplemental Canada Disability Benefit payment of $150.
• A commitment to review bank fees.

What’s next?

Prime Minister Carney has benefited from the goodwill of Canadians who have, so far, been generally receptive to his “Canada Strong” message and his pledge to stand up to U.S. President Donald Trump. Carney has built a reputation as a skilled negotiator. Getting a trade deal done with the Trump administration has been – and continues to be - his top priority. With Budget 2025, though, Canadians now have a better line of sight into his plans for shaping Canada’s future, with or without a deal.

The budget will be debated in Parliament and subject to a confidence vote, meaning an election could result if the budget bill fails to pass. This seems unlikely, as it would be politically problematic for the opposition parties. The winner of a snap election call could reasonably be the governing Liberals, who are already close to a majority mandate. More likely, the opposition parties will each seek a set of amendments to the budget, providing the government with some wiggle room to negotiate with other parties and secure enough votes to pass.

Key take-away

As the budget is discussed and debated in the House of Commons and among all Canadians, expect periods of market volatility and economic uncertainty. Keeping your emotions in check – and staying focused on a plan that’s geared toward your goals and risk tolerance – can help you achieve long-term investing success.

History shows that markets trend upward over time. Sudden moves, such as shifting into risk-adverse products like GICs and money market funds, could work against your long-term interests. Maintaining a diversified portfolio – with exposure to financial markets – is a better way to stay on track. If you have questions or decide it’s time to review your plan, a Co-operators financial representative is always ready to help.