Prime Minister Mark Carney’s first budget promises nation-building investments while aiming to shrink the federal public service by 10 per cent.
PM Mark Carney’s first budget is a little dissonant: austere for most of us yet lavish on what the government frames as “generational” investments in nation-building measures.
“What we are contending with is not a transition, it’s a generational shift. One that challenges our assumptions, tests our institutions, and demands a fundamentally different response — not one of caution, but of courage. Not one of passive stewardship, but of active, ambitious nation-building,” writes Finance Minister François-Philippe Champagne in the document’s introduction.
The methodology is tied to two fiscal anchors: a balanced budget by 2028–29 and maintaining our enviable declining deficit-to-GDP ratio. Canada claims the second-lowest rate in the G7 after Japan and a AAA credit rating, which may ease worry over a projected deficit of $78.3 billion this year.
Through Budget 2025, there will be about 10 per cent fewer employees in the public service. “From a peak of 380,000 in 2023–24, the public service population is expected to reach roughly 330,000 by the end of 2028–29 — a decline of about 10 per cent,” the budget says. “This reflects normal attrition through retirements, voluntary departures and previous savings exercises.”
“Savings will be achieved by restructuring operations and consolidating internal services and rightsizing programs to realize efficiencies,” the budget claims. “It will also involve workforce adjustment and attrition to return the size of the public service to a more sustainable level.”
However, Association CEO Anthony Pizzino notes, “in a time of uncertainty, our growing and aging population depends on an effective and reliable public service to deliver the programs and supports they count on.”
Through this downsizing, the government also says it is committed to minimizing hardship, protecting the diversity of the workforce and “ensuring a strong, younger generation of public servants.”
“It’s important to remind the government of the strength and value when older and younger generations work together,” Pizzino adds.
The budget proposes a voluntary Early Retirement Incentive program to those aged 50 (or 55 if they were hired after January 2012) and older with 10 years of service. This program will be funded through the Public Service Pension Fund — at a cost of $1.5 billion — meaning employee and retiree contributions will subsidize these departures. The government will also be making cuts to the RCMP Disability Pension program to the tune of $5.8 billion over four years. Indexing RCMP Disability Pensions to the Consumer Price Index is found under Annex 5 of the budget, where the government also mentions, “these proposed legislative amendments and/or regulations would also clarify the escalation formula for the Disability Pension Benefit and related benefits for CAF members, veterans and serving and retired RCMP members (including on a retroactive basis).”
“The Association will be closely monitoring any legislative changes and will engage the Minister to clarify this measure and to safeguard veterans’ benefits,” says Pizzino in response.
Further savings will be accomplished through the new Comprehensive Expenditure Review (CER), which hopes to achieve 4.9 per cent savings of $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.
A new Office of Digital Transformation is being created that will lead the adoption of AI and other new technologies across government to streamline operations. This means improving the efficiency of back-office and administrative functions and introducing AI for certain, as-yet-undefined tasks.
The budget also promises the limiting of both discretionary travel and consultants to save $25.2 billion over four years. Specifically, management and other consulting services will be reduced by 20 per cent in three years’ time.
The government says several yet-to-be-announced program changes will streamline service delivery and reduce spending by $17.5 billion over four years.
On the other end of the ledger, there are some big buys. The government will be spending $25 billion on housing over five years, building 4,000 factory-built homes and 45,000 new units. The Canadian Armed Forces (CAF) will receive $81.8 billion to rebuild, rearm and reinvest both in personnel and infrastructure, and defence and security will see investments of $30 billion over five years. The defence funding means Canada will meet its NATO two per cent spending target this year, five years ahead of schedule.
Over five years, $115 billion will go to infrastructure projects such as electricity-grid upgrades and high-speed rail, and $110 billion to investments in initiatives to drive productivity and competitiveness.
It is hoped this spending will help to stimulate an additional $500 billion in private investments over those five years.
The budget includes only limited measures aimed at older Canadians and does little to address the broader needs of an aging population.
Budget 2025 includes financial support for personal support workers made available through a new refundable tax credit equal to five per cent of their earnings, up to $1,100 per person.
However, missing are commitments to meaningfully address shortcomings with long-term care.
“It is disappointing that the budget makes no mention of a Safe-Long Term Care Act, a commitment under the previous government,” says Pizzino. “Improving long-term care and enforceable national long-term care standards remains a priority of the Association.”
New measures to combat financial fraud were introduced. Amendments to the Bank Act have also been proposed to address and protect against consumer-targeted fraud. A whole-of government National Anti-Fraud Strategy will bring together financial institutions, technology, and telecommunication companies to develop a cross-sectoral approach to protect Canadians from evolving and highly complex fraud schemes.
The government is moving forward with allowing the CRA to file tax returns on behalf of eligible Canadians with lower incomes. The CRA also is getting money to invest in AI, an area to monitor for unforeseen issues.
Consultations on changes to public sector retirement benefits are proposed. Employees will need six years instead of two to be eligible for the Pensioners’ Dental Services Plan. This doesn’t affect current plan members. The federal public service, RCMP and CAF will see their pension contributions reduced to reflect enhancements to their CPP/QPP contributions since 2019. This will increase liabilities for the pension plan. “Federal Retirees expects to be part of these consultations,” Pizzino notes.
Budget 2025 re-committed the government to expand early pension eligibility for federal front-line workers. “After years of advocacy from Federal Retirees and stakeholders, the government agreed to this change in 2024,” says Pizzino. “We are pleased to see it finally move forward in this budget.”
For veterans there’s some good news. Budget 2025 proposes to provide $184.9 million over four years, starting in 2026–27, and $40.1 million ongoing for Veterans Affairs Canada to stabilize their processing capacity for disability benefits applications and to modernize operational processes and IT infrastructure for its disability benefits program. “Federal Retirees has been calling for this investment to ensure that veterans have timely access to the benefits to which they are entitled,” Pizzino explains.
“From this budget, it is clear that Canada needs a stronger, comprehensive plan to ensure every older adult can age well and retire with financial security,” says Pizzino, looking ahead. “This is our focus: to make sure government decisions meet the needs of our members and older Canadians.”