Mark Carney’s much anticipated first budget is built on $280 billion in new capital investment while balancing operational spending over the next five years.
Against the backdrop of a worsening economy battered by the Trump administration’s tariffs, the Liberal government is leaning into Keynesian economics by carving out a strong role for the state in major projects, housing and defence industrial policy.
Here’s what stood out to Counsel’s team in the stakeholder lock-up:
Fiscal and Economic Top Line
- $78 billion projected deficit this year, shrinking to $58 billion by 2028-29, when the government will balance its “operating spending.”
- The government is committed to reducing direct program spending to 0.5% growth over the next five years, down from 8.1% over the past decade.
- Lowest net-debt to GDP ratio in the G7 at 13.3 times, and 2nd lowest deficit to GDP ratio at 2.2 times (all levels of government) as the government commits to maintaining a declining debt-to-GDP ratio.
- Growth in capital investments – $280 billion over five years – enabling $1 trillion in combined new public and private investment.
- 85% of Canada’s trade with the US remains tariff-free, compared to 73% globally.
- Growth reached 2.0 per cent in the first quarter but contracted by 1.6 per cent in the second quarter. Private sector economists expect real GDP growth to resume in the second half of 2025, with annualised growth of 0.2 per cent and 0.9 per cent in the third and fourth quarters, respectively. Overall, private sector forecasters expect real GDP growth of 1.1 per cent in 2025 and 1.2 per cent in 2026.
- Employment growth has slowed since January but rebounded in September, adding 60,000 jobs and offsetting earlier losses. Most of the rise in unemployment comes from slower hiring, as businesses delay or cancel job postings.
Infrastructure
The big news in the budget is a new Build Communities Strong Fund, to be administered by Housing, Infrastructure and Communities Canada, and proposes to provide $51.0 billion over 10 years in core public infrastructure including wastewater and transit. This fund is broken into three streams:
- A Provincial and Territorial Stream that will provide $17.2 billion over 10 years, starting in 2026-27, to support provincial and territorial infrastructure projects and priorities. Funding will support housing-enabling infrastructure (e.g., roads, water/wastewater), health-related infrastructure (e.g., hospitals), and infrastructure at colleges and universities. To access funds, provinces and territories must agree to cost-match federal funding and to substantially reduce development charges and not levy other taxes that hinder the housing supply.
- Of the above amount, $5 billion over three years, starting in 2026-27, will be dedicated for a Health Infrastructure Fund. This fund will complement existing health-related support provided to provinces and territories by helping to ensure their health infrastructure, such as hospitals, emergency rooms, urgent care centres, and medical schools.
- A Direct Delivery Stream, delivered by Housing, Infrastructure and Communities Canada, that will provide $6 billion over 10 years, starting in 2026-27, to support regionally significant projects, large building retrofits, climate adaptation, and community infrastructure. Proponents of regionally significant projects would be required to seek private sector investment, including private investment leveraged through Canada Infrastructure Bank financing, before being eligible for funding under this stream.
- The existing Canada Community-Building Fund will be rebranded as the initiative’s Community Stream. This stream will, as planned, provide $27.8 billion over 10 years, starting in 2026-27, to support local infrastructure projects.
The government is also investing $2.3 billion over three years, starting in 2026-27, to renew the First Nations Water and Wastewater Enhanced Program.
Climate Competitiveness Strategy
The Carney government’s long anticipated climate plan contains a grab bag of measures that ease pressure on climate action in the short term but sets the stage for new federal-provincial negotiations over the coming years:
- Develop a post-2030 carbon pricing trajectory: The government will engage provincial and territorial (PT) governments in setting a multi-decade industrial carbon price trajectory that targets net-zero by 2050.
- Fix the benchmark and improve the backstop: The government will improve its application of the benchmark—the tool that ensures all PT industrial pricing systems are harmonised across the country in providing a common, strong price signal. The government will promptly and transparently apply the federal backstop whenever a PT system falls below the benchmark.
- To enable long-term agreements with provinces and territories, Budget 2025 announces the government’s intention to propose legislative amendments to the Canadian Environmental Protection Act.
- The Carney government is scrapping the oil and gas emissions cap: “Effective carbon markets, enhanced oil and gas methane regulations, and the deployment at scale of technologies such as carbon capture and storage would create the circumstances whereby the oil and gas emissions cap would no longer be required.”
- Proposing targeted updates to the Clean Fuel Regulations to help reduce reliance on imported fuels, strengthen domestic supply chains, and support jobs in agriculture, forestry, and waste sectors.
- Following through with plans to implement the Clean Electricity investment tax credit and remove the conditions imposed on provincial and territorial governments for their Crown corporations to be eligible.
- Extend, by five years, the availability of the full credit rates for the Carbon Capture, Utilization, and Storage (CCUS) investment tax credit, which would apply from 2031 to 2035 – pushing out the timelines of Pathways project.
- $2 billion over five years, on a cash basis starting in 2026-27, to Natural Resources Canada to create the Critical Minerals Sovereign Fund. The fund will make strategic investments in critical minerals projects and companies, including equity investments, loan guarantees, and offtake agreements.
- Proposing legislative amendments to the Competition Act, which was recently amended to create new enforcement provisions for false claims of environmental benefit. These “greenwashing” provisions are creating investment uncertainty and having the opposite of the desired effect, with some parties slowing or reversing efforts to protect the environment. The government intends to propose legislative amendments to remove some aspects of these provisions, while maintaining protections against false claims.
Productivity Super-Deduction
The government is investing $13 billion in new capital investments from a new “productivity super-deduction,” a set of enhanced tax incentives covering all new capital investment that allows businesses to write off a larger share of the cost of these investments right away. This includes:
- Reinstatement of the Accelerated Investment Incentive,
- Immediate expensing (i.e., 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.
- Capital expenditures for scientific research and experimental development.
- Manufacturing and Processing Buildings
The productivity super-deduction will reduce Canada’s marginal effective tax rate from 15.6-13.2%, the lowest in the G7 and below the OECD average.
Low-Carbon LNG
The budget also announced accelerated Capital Cost Allowances of 30 to 50% for low-carbon liquefied natural gas facilities that meet new high standards of emissions performance – a big boost to projects of national interest.
Scientific Research & Experimental Development Tax Incentive (SR&ED)
The Liberals are committing $27 billion in capital investment via SR&ED by further increasing the annual expenditure limit on which the SR&ED programs’ enhanced credit can be earned from $4.5 million to $6 million.
They will implement an elective pre-claim approval process to provide businesses with an up-front technical approval of their eligible SR&ED projects and increase the use of AI in the program’s administration, which will enable CRA to avoid subjecting low-risk claims to unnecessary audits.
Comprehensive Expenditure Review
The government is committing to finding $60 billion in total savings over five years, saving Canada $13 billion annually by 2028-29. This includes bringing public service growth in line with population growth by 2029, from a peak of almost 368,000 civil servants in 2023-24, to roughly 330,000 by the end of 2028-29—a decline of about 40,000 positions or 10 per cent. The government will reduce the executive cadre in the public service by 1,000 positions overall over the next two years.
To achieve this, Budget 2025 proposes to amend the Public Service Superannuation Act and the Income Tax Regulations to offer a voluntary Early Retirement Incentive (ERI) program through the Public Service Pension Plan. Public servants at age 50 or above for Group 1 and age 55 or above for Group 2 who have at least ten years of employment, with at least two years of pensionable service in the Plan, may apply.
The budget’s Annex 3 includes department-by-department spending reduction plans, with many departments facing a 15% cut. Of note, Crown Indigenous Relations and Northern Affairs Canada, and Women and Gender Equality face a 2% cut.
The government intends to stand up an Office of Digital Transformation, which will proactively identify, implement, and scale technology solutions across the federal government. Shared Services Canada, in partnership with the Department of National Defence and the Communications Security Establishment, will develop a made-in-Canada AI tool that can be deployed across the federal government. Shared Services Canada will partner with leading Canadian AI companies to develop this internal tool.
Protecting Strategic Industries
As previously announced, the government is investing $5 billion over six years, starting in 2025-26, for the Strategic Response Fund, a new program with flexible terms to help firms in all sectors and regions impacted by tariffs to adapt, diversify, and grow. This is the new Strategic Innovation Fund, but with a new focus on protecting jobs in Canada.
Other initiatives of note targeting impacted industries:
- Up to $1 billion over three years, starting in 2025-26, to the Regional Development Agencies for the Regional Tariff Response Initiative to support businesses impacted by tariffs.
- $372 million over two years, starting in 2026-27, to Natural Resources Canada to establish a Biofuels Production Incentive to support the stability and resiliency of domestic producers of biodiesel and renewable diesel, of which $175.2 million will be repurposed from the Clean Fuels Fund; and the intention to make targeted amendments to the Clean Fuel Regulations to support the domestic biofuels industry.
- $500 million over three years on a cash basis, starting in 2026-27, to renew and expand Natural Resources Canada’s forestry programs focused on market and product diversification (including new export initiatives).
- $570 million over three years, starting in 2025-26, through Labour Market Development Agreements with provinces and territories to support training and employment assistance for work.
Sovereign AI
The government is committing $925.6 million over five years, starting in 2025-26, to support a large-scale sovereign public AI infrastructure that will boost AI compute availability and support access to sovereign AI compute capacity for public and private research (this includes $800 million previously in the fiscal framework).
The Liberals will also enable the Canada Infrastructure Bank to invest in AI infrastructure projects.
Start-Ups and Scale-Ups
The budget includes $1 billion on a cash basis over three years, starting in 2026-27, for the Business Development Bank of Canada to launch the new Venture and Growth Capital Catalyst Initiative, a fund-of-funds that would leverage more private venture capital by incentivising pension funds and other institutional investor participation. They will also invest $750 million to support Canadian firms facing early growth stage funding gaps via a strategy to be developed in 2026.
Immigration Levels Plan
The Liberals included their annual immigration levels in the budget, committing to set permanent resident admission targets at 380,000 per year for three years, down from 395,000 in 2025, while increasing the share of economic migrants from 59 per cent to 64 per cent.
The government is reducing the target for new temporary resident admissions from 673,650 in 2025 to 385,000 in 2026, and 370,000 in 2027 and 2028. This includes new international student arrivals, which are down 60% since 2024. Of note, the Immigration Levels Plan will consider industries and sectors impacted by tariffs and the unique needs of rural and remote communities.
Recruiting International Talent
The Liberal government is pouncing on the opportunity to poach top talent from abroad, including from American universities that have been battered with research cuts, with new measures to recruit international talent:
- $1 billion over 13 years, starting in 2025-26, to the Natural Sciences and Engineering Research Council, Social Sciences and Humanities Research Council, and Canadian Institutes of Health Research to launch an accelerated research Chairs initiative to recruit exceptional international researchers to Canadian universities.
- $400 million over seven years, starting in 2025-26, to the Canada Foundation for Innovation to establish a complementary stream of research infrastructure support
- $133.6 million over three years, starting in 2026-27, to the Natural Sciences and Engineering Research Council, Social Sciences and Humanities Research Council, and Canadian Institutes of Health Research to enable top international doctoral students and post-doctoral fellows to relocate to Canada.
- $120 million over 12 years, starting in 2-26-27, to support university recruitment of international assistant professors.
Limiting Student Aid for Private Colleges
Budget 2025 announces the government’s intention to propose legislative and regulatory amendments to address integrity issues related to private educational institutions by generally limiting access to the Canada Student Grant for Full-time Students to students attending public educational institutions and not-for-profit private institutions within Canada.
Internationally, Canada Student Loans and Grants generally would only be provided to those who attend public institutions. This measure is expected to result in savings of approximately $1.0 billion over four years, starting in 2026-27, and $280.1 million ongoing.
Growing Canada’s Trade
The Carney government has committed to doubling non-US trade, worth $300 billion in exports, over the next ten years. To help achieve this, the budget invests $5.0 billion over seven years, starting in 2025-26, in Transport Canada to create the Trade Diversification Corridors Fund by investing in new port, airport, and railway infrastructure.
Of note, the Canada Border Services Agency will work with Public Safety, Transport Canada, and Global Affairs Canada to identify additional ports for container import and export designation, particularly in the Great Lakes-St. Lawrence Region, like Québec City and Hamilton.
The budget invests $1 billion over four years, starting in 2025-26, in Transport Canada to create the Arctic Infrastructure Fund, which will invest in major transportation projects in the North with dual-use applications for civilian and military use, including airports, seaports, all-season roads, and highways.
Housing
The budget contains only a few previously unannounced measures with respect to housing as part of $25 billion in new capital spending over 5 years in measures including Build Canada Homes:
- An increase to the Canada Mortgage Bond (CMB) annual issuance limit from $60 billion to $80 billion, starting in 2026, to unlock thousands of new housing units per year. This will increase access to cost-effective mortgage funding for lenders, helping them offer more mortgages and support the construction of new multi-unit housing across Canada. The increase will apply exclusively to multi-unit housing.
- Increasing the Canada Infrastructure Bank’s target for investments in Indigenous infrastructure that benefit First Nations, Inuit, and Métis communities from at least $1 billion to at least $3 billion across its priority sectors.
Affordability
The budget contains multiple measures to ease the cost of living for Canadians, including:
- Amend the Income Tax Act to allow the CRA to file a tax return on behalf of certain eligible individuals with lower incomes in simple tax situations who do not owe tax and do not file themselves.
- $216.6 million per year, starting in 2029-30, to Employment and Social Development Canada, Indigenous Services Canada, and Crown-Indigenous Relations and Northern Affairs Canada, to make the National School Food Program permanent.
- Personal Support Workers Tax Credit, under which eligible personal support workers employed in the remaining provinces and territories could claim a refundable tax credit equal to 5 per cent of their eligible earnings, providing support of up to $1,100 per year.
Increasing Competition in Canada’s Telecom Sector
The government is committed to increasing competition in the telecom sector to lower costs for Canadians. Budget 2025 announces the government’s intention to boost competition, innovation, and productivity through various measures, namely:
- Pursuing a new “dig once” policy approach to nation-building projects to encourage coordinated installation of fibre optic lines as part of the development of major projects of national significance.
- Reducing the regulatory burden required to deploy telecommunications infrastructure across the country, including by consulting on a streamlined tower-siting process later this year.
- Ensuring that industry has access to quality spectrum, including by releasing additional spectrum, consulting on a modernised Spectrum Licence Transfer Framework in late 2025-26, and continuing to use the streamlined framework for residual spectrum auctions established in 2021.
- Working alongside the Canadian Radio-television and Telecommunications Commission to implement the pro-consumer amendments to the Telecommunications Act announced in Budget 2024 that will allow Canadians to more easily renew or switch between home internet, home phone, and cell phone plans.
- The Canadian Radio-television and Telecommunications Commission’s ongoing efforts to implement the government’s policy direction to enhance and protect the rights of consumers and to implement new rates for access to wholesale internet services and wireless roaming.
Support for Vulnerable Canadians
As part of measures announced last week, the government is investing $223.4 million over five years, starting in 2026-27, with $44.7 million ongoing, to strengthen federal action on gender-based violence.
The budget reaffirms the government’s intention to lower barriers to accessing the Canada Disability Benefit by helping to offset the costs of applying for the Disability Tax Credit for Canada Disability Benefit recipients.
To help ensure Canada Disability Benefit recipients keep the full value of their benefits, including other federal income-tested benefits and programs, such as the Canada Child Benefit, Budget 2025 confirms the government’s intention to bring forward legislation to exempt the Canada Disability Benefit from being treated as income under the Income Tax Act.
Defense
The budget includes $30 billion over 5 years in capital spending on defense measures, out of $81.8 billion over five years on a cash basis, starting in 2025-26, to rebuild, rearm, and reinvest in the Canadian Armed Forces (CAF).
This includes $6.6 billion over five years, starting in 2025-26, to strengthen Canada’s defence industry through a Defence Industrial Strategy:
- $68.2 million over three years, starting in 2025-26, to the Department of National Defence (DND), Innovation, Science and Economic Development Canada (ISED), the National Research Council (NRC), and the Communications Security Establishment to establish the Bureau of Research, Engineering and Advanced Leadership in Innovation and Science (BOREALIS).
- $1.0 billion in 2025-26 to create a new Defence and Security Business Mobilization Program at the Business Development Bank of Canada to provide loans, venture capital, and advisory services to help small-and medium-sized businesses
- $656.9 million over five years, starting 2025-26, to ISED to develop and commercialise dual civilian-military technologies in a range of industries, including aerospace, automotive, marine, cybersecurity, artificial intelligence, biodefence, and life sciences.
- $334.3 million over five years, starting in 2025-26, to ISED, NRC and the National Science and Engineering Research Council for a suite of measures to help anchor quantum technology companies in Canada and provide pathways to technology adoption in defence-related applications and industries.
- $443.0 million over five years, starting in 2025-26, to Natural Resources Canada and ISED to support the development of innovative critical minerals processing technologies, support joint investments with Allies in Canadian critical minerals projects, and develop a critical minerals stockpiling mechanism to strengthen Canadian and Allied national security.
The government also announced the creation of a new Defence Investment Agency (DIA), which will overhaul and streamline Canada’s defence procurement. The budget provides $30.8 million over four years, starting in 2026-27, with $7.7 million ongoing to Public Services and Procurement Canada to establish the DIA. The DIA will accelerate the delivery of goods and services to better meet the needs of the CAF at the best value for Canadians by centralising processes and enhancing engagement and collaboration with Canadian industry and international partners. The Agency’s focus will be on defence procurements valued at $100 million and above.
Political upshot
The political calculus for the budget’s passage has changed with floor-crossing rumours again flying today, leading to speculation that the Liberals may yet achieve their majority without having to face an election.
While no opposition party has come out to support the budget, no party is itching for an election so close on the heels of the April vote, including the governing Liberals. There is no sign that the election train is leaving the station.
Conservative Leader Pierre Poilievre faces an uncontested leadership review in January and trails Carney by over 20 points in popularity, trailing behind a resilient Conservative brand.
The NDP are in a leadership race and rebuilding after a tough election, signally their willingness to abstain on budget votes despite its rightward tilt.
The Bloc may be the most open to a federal election ahead of a Quebec provincial vote that could put the Parti Québécois back in power with a pledge to advance an unpopular sovereignty referendum.
Carney is spending his political capital on some tough decisions, including cuts to programs and appears set to govern. Absent a floor crossing or three, the Liberals will need to count on a steady stream of abstentions to pass the budget through multiple votes over the coming months.