Budget 2025 takes a hard look at the geopolitical and economic challenges Canada faces and outlines a plan to focus on “what we can control” through targeted industrial policy and investments.
The first budget from Prime Minister Mark Carney and Finance Minister François-Philippe Champagne reads like an economic thesis: It outlines the fiscal and economic headwinds Canada faces, evaluates the country’s strengths such as a low federal debt-to-GDP ratio and a high credit rating, and offers solutions to the challenges outlined.
The document is high on substance and low on flash. Even its graphic design drops off after the introductory section to look less like the high production style of many previous budgets.
There are also few shiny consumer-focused policies and, in particular contrast to the Trudeau-era documents, no major new social programs. Rather, it maintains existing levels of support for key programs like pharmacare and dental care, $10-a-day-child care, and a national school food program.
Budget 2025 does focus on massive infrastructure investments, investment growth and attraction, and industrial policies for defence and the clean economy.
The Big Deficit and a New Definition of “Balance”
The fiscal challenge looms large: a $78-billion deficit that the government will split in future between operating costs and capital investments. In doing so, it pledges to eliminate the “operating deficit” by fiscal year 2028/29; however, that would still leave an approximately $58-billion ongoing deficit in terms of capital investment spending.
Carney and his advisors have argued the separation of operating and investment spending, as most businesses do, better represents the true cost of government. However, this may fail to sway opposition parties, who just see a big, “baked-in” deficit.
Expenditure Review and the Path to Operating Balance
The budget promises $60 billion in “savings” over five years as a result of a program expenditure review that’s spelled out ministry by ministry. For regulatory ministries like Environment and Climate Change Canada and the Department of Fisheries and Oceans, this includes a mandate to focus more closely on their “core mandate” – which could also improve permitting and authorization timelines.
In other ministries, cost-cutting means exploring how artificial intelligence can speed up work. Additionally, a new Digital Transformation Office will oversee cross-government efforts to leverage technology to increase efficiency.
Budget 2025 also delineates more specifically what money will be spent to run programs. For example, a $2 billion Critical Minerals Sovereign Fund adds $50 million for program delivery at NRCan.
This step likely reflects Carney’s own frustration at the cost of government operations as opposed to impacts.
What We Already Knew
Some of the biggest spending items in Budget 2025 are already underway:
- A middle-class tax cut, the end of the consumer tax on carbon and the removal of GST on new homes for first-time buyers.
- The $13 billion Build Canada Homes agency focused on increasing housing starts, investing in non-market housing and spurring innovations like modular housing.
- A focus on getting “nation-building” projects approved and built faster under a new Major Projects Office.
- The $5 billion Strategic Response Fund is absorbing the $1 billion left in the Strategic Innovation Fund (SIF). Existing applications in the SIF pipeline can continue but, in the future, SRF applications must be focused on tariff-impacted communities. SRF also comes with a commitment to be more “timely and responsive,” which, for past SIF applicants, may prove a welcome change.
- Buy Canada policies across government are cited throughout. The general thrust is that government procurement must, whenever possible, aim for a Canadian-made option first. A number of programs, tax credits and grants in the budget include clear Buy Canadian provisions for applicants.
The Big Investments
Budget 2025 also includes long-awaited program details or new funding mechanisms for key sectors of the Canadian economy:
Housing and Infrastructure
- Over $280 billion over five years on new infrastructure. Through financing options, the government will spend $280 billion but actually facilitate $450 billion in infrastructure spending.
- $51 billion over ten years for a new Build Communities Strong Fund focused on municipal and housing-enabling infrastructure. Some of the fund’s measures will require participating cities to lower development charges to receive monies. This fund will have three main components:
o The Canadian Community Building Fund, the new name for the former gas tax fund won’t change (and represents $28 billion).
o A $6 billion stream available to municipalities directly through bilateral agreements that may require development charge reduction related to new homes.
o $17 billion for agreements with provinces and territories that will require steps on development charges. About $5 billion will be for health care infrastructure. The other $12 billion will be for housing-enabling infrastructure.
- More than $25 billion in spending on housing over five years: $2 billion in tax cuts, $7 billion to Build Canada Homes and $16 billion to existing programs.
- $1 billion for an Arctic Infrastructure Fund for transportation projects with dual-use applications.
Defence
The budget formally launched the long-touted Defence Industrial Strategy, which will spend the bulk of the $6.6 billion allocated to help Canada hit its promised NATO spending targets. Initial new programs include:
- $68.2 million to establish a Bureau of Research, Engineering and Advanced Leadership in Innovation and Science (BOREALIS).
- $1 billion for small-to-medium-sized businesses to contribute to defence through a Defence and Security Business Mobilization Program at the Business Development Bank of Canada.
- $656.9 million over five years to “commercialize dual civilian-military technologies” across industries, including “aerospace, automotive, marine, cybersecurity, artificial intelligence, biodefence, and life sciences”.
- $334.3 million over five years for quantum-computing companies in Canada;
- $443 million to develop innovative critical minerals processing technologies, support joint investments with allies in Canadian critical minerals projects, and develop a critical minerals stockpiling mechanism.
- $182.6 million over three years for a “sovereign space launch capability”.
Natural Resources
- A $2 billion Critical Minerals Sovereign Fund that builds on commitments made at G7 meetings to boost domestic control of critical minerals supply. Specifically, the fund will support strategic investments in critical minerals through equity investments, loan guarantees, and offtake agreements.
- A total of $1.5 billion for critical mineral infrastructure support by establishing a First and Last Mile Fund, which will absorb the Critical Minerals Infrastructure Fund. The new fund will focus on “supply chains at the upstream and midstream segments of value chains” in addition to the old fund’s focus on energy and transportation infrastructure.
- An additional 12 critical minerals are added to the list eligible for the Critical Mineral Exploration Tax Credit (CMETC): bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin, and tungsten.
- Expanded eligibility for the Clean Technology Manufacturing investment tax credit to include antimony, indium, gallium, germanium, and scandium.
Attracting Capital with a Productivity “Super-Deduction”
The big news for business in Budget 2025 is a so-called “Super-Deduction” designed to attract capital and investment to Canada – and shore up the economy. The goal is to reduce the marginal effective tax rate by 2 per cent and make Canada rate the lowest in the G7. The deductions are meant to be a response to the Trump administration’s One Big Beautiful Bill Act.
Officials said the deductions will be as widely available as possible for capital costs on equipment related to everything from food and clothing manufacturing to mining and aerospace.
Some of these proposed write-offs include:
- Reinstating the Accelerated Investment Incentive, which provides an enhanced first-year write-off for most capital assets.
- A 100-per-cent first-year write-off of manufacturing or processing machinery and equipment.
- Clean energy generation and energy conservation equipment, and zero-emission vehicles; productivity-enhancing assets, including patents, data network infrastructure, and computers; or expenditures for scientific research and experimental development.
Expanding, Ending and Renaming Climate Initiatives
Climate change and Canada’s role in the green economy take a back seat in comparison to Trudeau-era documents.
As expected, the Carney government has removed the emissions cap on oil and gas production. It also promises to remove “greenwashing” provisions from the Competition Act that created concern and consternation across industries.
That said, Budget 2025 is clear: the industrial carbon price is here to stay. In order to improve the pricing and increase certainty for businesses, the government aims to develop a post-2030 carbon pricing trajectory, fix the benchmark and improve the backstop, and continue to offer carbon contractors for difference through the Canada Growth Fund.
The government’s Climate Competitiveness Strategy largely repackages the least controversial of the Trudeau-era policies. The suite of clean-economy tax credits are renewed, with some expanded to increase amounts or eligibility. For example, the Clean Energy Investment Tax Credit will include new eligibility for nuclear and biomass projects.
Opposition Reaction
The Conservative Party criticized the budget, saying the government had sacrificed the future of young Canadians with the large deficit. Conservative Leader Pierre Poilievre, focused on everyday affordability as he often is, responded that Carney had “nearly doubled Trudeau’s deficit and kept Liberal taxes on groceries, work, energy, and homebuilding.” Deputy Leader Melissa Lantsman said on CBC News that the official opposition would not support the budget.
The NDP has said it will review the budget before deciding whether to support it in caucus meetings this week. Interim Leader Don Davies said that, while there are problematic measures, there are also good ones.
The Bloc Québécois also set clear expectations for the budget and said they’ve not been met.
Will the Budget Pass and When is the First Vote?
There remains a slim chance of a Christmas election though this is highly unlikely. The NDP suggested earlier this week that the party may abstain on the budget vote to prevent one.
In terms of next steps, the budget motion requires four days of debate, which means the first vote on it – which would be a vote of confidence – would likely be during the week of November 17. After that, the government tables a Budget Implementation Act (BIA), which would likely be voted on in late November or early December.
In theory, there will be many opportunities for the minority government to fall over the next month. But the most realistic outcome remains that the budget passes and the government stands into the new year.
For specific questions about what’s in Budget 2025 for your business or how to influence the implementation of initiatives announced in this article, contact us at info@mcmillanvantage.com for more information.
