Canada's new budget is here, and it's packed with changes aimed at boosting the economy and addressing key challenges. Our senior economist covers off these five highlights and more:
Shift in spending focus
The budget redirects spending towards industrial support, infrastructure, defence and housing. This shift aims to tackle economic headwinds and stimulate growth.
Boost for defence
With a proposed $82 billion in defence spending over five years, Canada is set to meet NATO's 2% GDP defense spending target this year, with plans to reach 5% by 2035.
Support for housing
A new federal agency, Build Canada Homes, will receive $13 billion over five years to speed up the construction of affordable, non-market housing. Additionally, GST will be eliminated for first-time homebuyers on homes up to $1 million.
Changes to taxes
The budget includes reductions in personal income tax rates, cancellation of the capital gains tax increase and the repeal of the digital services tax. These changes aim to ease the tax burden on Canadians.
Slower immigration
The government plans to reduce temporary resident admissions and lower the target for permanent residents, aiming to admit 380,000 annually from 2026-2028. This adjustment aims to manage population growth more effectively.
Want to dive deeper into these changes? Watch our video for a full breakdown of Canada's Budget 2025 and what it means for you!
Watch time: 4.50 minutes
View transcript
00:00:03:14 - 00:00:26:15
Hello and welcome to our video review of Budget 2025. This is the first budget under Prime Minister Carney's government, so something of a fiscal reset was to be expected. There are, of course, campaign promises to deliver on. There's a new administration in the U.S. whose protectionist trade policies have done real damage to Canada's economy and demand a response.
00:00:26:17 - 00:00:54:11
There's a desire to increase defence spending alongside our NATO allies, and there are long standing issues around productivity growth and housing affordability that need attention. The government has laid out a plan to address many of those priorities by running substantially larger budget deficits – about twice the size on average, relative to the previous fiscal plan. That includes a sizable $78 billion shortfall in the current fiscal year, which ends in March.
00:00:54:13 - 00:01:19:08
Deficits gradually shrink over the forecast horizon, but only from 2.5% of GDP to about 1.5%. So there's no plan here to balance the budget. Those deficits are held in check somewhat by planned spending restraint. The government aims to grow direct program spending by just 1% annually over the next several years. That's down from 8% growth annually over the past decade.
00:01:19:10 - 00:01:42:22
That will involve shrinking the public service or federal employment by about 10%. It's worth noting that spending restraint doesn't involve transfers to provinces and households. So things like health care funding and the Canada Child benefit are untouched. That limits the scope of fiscal consolidation. But even still, it could be challenging for the government to rein in spending as much as they're suggesting if they can't deliver.
00:01:43:02 - 00:02:06:11
The plan is for revenues to fully fund the government's day-to-day operations in three years’ time, and borrowing will only be used to fund capital spending. That seems like a worthwhile objective. Let's see if they can achieve it.
In terms of new spending proposed in the budget, key priorities include defence, infrastructure, business investment incentives and support for companies and workers impacted by tariffs.
00:02:06:13 - 00:02:35:13
New defence spending is substantial, and it includes a defence industrial strategy to develop Canada's defence industrial base. Like many of its allies that are increasing defence spending, the goal is to ensure that more of that money stays within the country rather than simply funding imports from the U.S. The government's response to tariffs includes enhanced employment insurance for affected workers and funding for businesses in the most heavily impacted industries, including measures to help them retool and reach new markets.
00:02:35:15 - 00:03:09:07
There's also a fund to boost investment in trade infrastructure like ports and railways. The ambition is to double Canada's exports outside the U.S. over the next decade. And while this plan alone won't achieve that, efforts to get enabling infrastructure in place are a step in the right direction.
In an effort to boost private sector investment, the budget offers accelerated depreciation and, in some cases, immediate expensing of new capital investment that helps lower the marginal effective tax rate on new investment and makes Canada more competitive relative to the U.S.
00:03:09:09 - 00:03:33:23
Following similar measures in their recent tax bill, keep in mind that Canada already had a relatively low tax rate on new investment. Yet business cap ex has been quite sluggish. The success of these initiatives will depend on businesses increasing investment during a period of significant economic uncertainty.
Finally, the budget included a number of personal tax and housing measures that had already been announced.
00:03:34:01 - 00:04:05:00
The government canceled a planned capital gains tax hike, removed the consumer carbon tax and reduced the tax rate on the lowest personal income tax bracket, which is set to decline further next year.
On housing, there's funding to boost construction of affordable housing, as well as a new tax break on new home purchases by first time homebuyers. Overall, while there's a welcome reorientation of spending toward more productive uses, the budget is perhaps not quite as bold from an investment and deficit perspective as some expected.
00:04:05:02 - 00:04:27:02
We don't feel compelled to dramatically change our growth forecast for Canada, which already assumed a fiscal lift of about half a percent of GDP next year. It's important to note that as a minority government, the Liberals will need the support or possibly abstention of a handful of opposition MPs to pass this budget. We think that's likely given the Liberals’ relatively strong mandate.
00:04:27:05 - 00:04:37:08
But of course, we'll be keeping an eye on the budget debate as it evolves.
Okay, that's it for Budget 2025. I hope you found it useful. Please tune in again next time.