A New Approach to Fiscal Management and Growth for Canada — We need a government that spends less, so Canada can invest more.
In recent years, the federal government has been spending too much. Total spending has increased by around 9% per year on average over the past decade1, and the federal workforce has grown over 40% in total since 2015.2 Moreover, the federal government has consistently missed its spending targets and breached its fiscal guardrails.
At the same time, Canada is investing too little, both relative to the past and compared to the enormous opportunities ahead. For example, Canada must invest $2 trillion by 2050—about $80 billion per year—to become carbon competitive and achieve Net Zero. However, investments in decarbonisation currently run between $10–20 billion annually.3
Canada's available compute resources—including its data centres, cloud, AI systems and supercomputers—are notably behind leaders such as the United States, Japan, and China, constraining the critical computing power essential for driving innovation.4
Overall business investment in Canada has dropped from 14% of GDP in 2014 to 11% in 2024,5 undermining long-term economic growth and workers’ wages. Lower investment in information and communications technologies, machinery, equipment, and infrastructure restricts our productivity, innovation, and competitiveness.
It is time to build a new Canadian economy through investments that will create great jobs, higher incomes and drive the productivity we need to pay for a stronger health care system and social services.
Canada’s major investment opportunities include the imperative to build millions of new homes in the next few years, the enormous opportunities to expand and modernize our energy infrastructure so that we are less dependent both on foreign suppliers and the United States as our main customer. To build more competitive manufacturing and services sectors, Canada must invest to become a clean energy superpower in nuclear, hydro power, wind, hydrogen, battery storage and carbon capture. To lead the AI revolution, we need to capitalise on our unique opportunity to build competitive data centres and intelligence infrastructure that are wired into the largest AI market in the world. To diversify our trading partners away from the United States, we need to develop our ports, supply chains and new trade corridors.
By fostering investment in these critical areas, we can drive more rapid and more sustainable growth that secures Canada’s economic future.
A Mark Carney-led government’s fiscal policy will focus first on reining in wasteful and ineffective government spending, creating room for personal income tax cuts so that Canadians can keep more of their hard-earned money and better cope with the higher cost of living. Now is the time for a more efficient and effective government—one that delivers better results while spending responsibly. By streamlining operations and reducing waste, we can ensure that all Canadians benefit from a focused, responsive, and sustainable government.
Reining in wasteful spending will further maximize the government’s ability to catalyze the enormous private investment needed to build Canada’s new economy. A Carney government will focus on maximising the outcomes achieved, while minimising the dollars spent. We will slow the growth of government spending, initially cap the size of the public service, and review our spending with an emphasis on outcomes and technology to reduce inefficiencies. By leveraging AI and machine learning to boost productivity and cut costs across government, we will build a highly competitive, technology-enabled public service focused on delivering for Canadians and ensuring funds are allocated where they best serve Canadians.
In order to both reduce spending and increase investment, a Mark Carney-led government will make major changes to both the government’s operating and capital budgets.
Operating spending represents ongoing government expenses. While we will review operating spending, transfers to individuals (e.g., pension and elderly benefits, employment insurance, child benefits, GST/HST credits, and disability savings grants) and transfers to provinces and territories (e.g., Equalization, Canadian Health Transfer, Canada Social Transfer, and Territorial Formula Financing) will be maintained.
Capital investments drive economic growth and build our future. Examples of federal capital investments include capital transfers, such as those through Infrastructure Canada, and a range of tax measures from Investment and Production Tax Credits to Accelerated Depreciation, that catalyse massive private investment in cutting-edge industries. Direct investments support affordable housing initiatives, and initiatives such as the Housing Accelerator and other capital-focused housing investments. Capital investments will also include capital expenditures for military hardware produced in Canada and military infrastructure (including dual-use infrastructure) located in Canada.
A Mark Carney-led government will focus on ensuring that government capital investment dollars catalyse multiple times their value in private investment. This will maximize job creation, boost incomes for Canadian workers, supply more resources for federal programs to protect the vulnerable, and build a stronger, fairer Canada.
A Mark Carney-led government will balance the operating budget in three years, ensuring responsible financial management while making wise, long-term investments to build for Canada’s prosperity and future. At the same time, we will run a small deficit on capital spending that aligns with our fiscal capacity, recognizing that current capital spending is estimated to be approximately one percent of GDP. We will also adopt a fiscal rule to ensure that government debt-to-GDP declines over the budget horizon. By catalysing major private investment while disciplining core government spending, this approach will grow our economy ensuring that the overall debt burden declines over time, while new jobs and higher incomes are created for Canadian workers.
To ensure that capital spending is consistent with the approach outlined, new legislation will be introduced. We will reinforce the capacity and oversight function of the Parliamentary Budget Officer in this respect.
1 Calculated as the compound annual growth rate from 2013-2014 to 2023-2024. Includes “direct program expenses” and therefore excludes major transfers to individuals, provinces, territories, and municipalities, public debt charges, and net actuarial losses. See here for more details
2 The federal workforce includes the population of the Core Public Administration and separate agencies. See here for more details:
3 Source: “The $2 Trillion Transition: Canada’s Road to Net Zero” by RBC. Available here
4 Source: “Can Canada Compute? Policy Options to Close Canada’s AI Compute Gap” by The Dais. Available here
5 Business investment defined here as Gross Fixed Capital Formation in non-residential structures, machinery and equipment, and IP products. Figures shown are from Q4 2014 and Q3 2024 and calculated using chained (2017) dollars at annualized rates.
