Federal Budget 2025 Preview: A Budget Like No Other

Highlights

• After a long delay, the 2025 federal budget is finally coming on November 4. While it’s difficult to know exactly how big the planned deficits will be, announced spending and tax cuts make clear that they will be among the largest in recent memory as a share of GDP outside of a recession or pandemic (graph 1).
• Defence should take centre stage in Budget 2025, but there is likely to be plenty of other planned spending between its covers. Expenditures on infrastructure, housing, and tariff-impacted industries and workers are likely to have big price tags attached as well, not to mention the dozens of other smaller measures included in the 2025 election platform. This expansion in federal government spending is expected to be partially offset by substantial cuts to operating expenses and a reduction in public sector payrolls.
• These spending increases wouldn’t have as substantial an impact on the deficit if it weren’t for the accompanying reduction in tax and tariff revenues. Lower revenues without an offsetting spending reduction increase the government’s deficit and debt. Indeed, we’ve determined that the economic benefits of these measures will not generate sufficient revenues to offset the planned reduction.
• We expect the federal debt-to-GDP ratio to rise steadily over the next decade—a stark contrast to the decline projected in the prior federal fiscal outlook. Risks to this outlook are tilted to the downside, with the possibility of renewed trade shocks and rising global long-term interest rates all threatening the sustainability of federal finances. While a debt downgrade isn’t imminent, Canada’s AAA status shouldn’t be taken for granted.