Fall Federal Budget: Will Spending Be Cut?

Evelyn Jacks

Canada has historically presented an annual budget since Confederation in 1867, even through periods like World Wars and the Great Depression, but we have recently experienced the longest period without a full federal budget in our history. By the time the next one is brought down, expected in October 2025, it will have been 18 months since the controversial April 2024 budget which introduced the doomed capital gains inclusion rate hikes. What can we expect?

Unprecedented Deficit Spending. This summer the CD Howe Institute predicted it expects a deficit of $92 billion this fiscal year ending 2026, slowing to an average of about $78 billion annually over four years. This is more than double what the Parliamentary Budget Officer (PBO) predicted before the spring federal election. 

The parliamentary summer hiatus has included a directive to federal government departments in preparation for the fall federal budget: for government departments to cut 7.5% from program spending for the 2026-27 fiscal year, followed by 10% in the next year and 15% in the year after that. How will that happen? A good clue may be in a reduction in the civil service.

Largest Expenditure – the Civil Service. According to the PBO, personnel costs are the largest component of federal operating spending, estimated at $71.1 billion in 2024-25 and expected to rise to $76.2 billion by 2029-30. It notes in it August 28, 2025 report, Projecting Federal Personelle Expenditures: 

 “Compared to our March 2025 projection, growth in personnel expenses is driven by an increase in the number of full-time-equivalents (FTEs), projected to reach almost 442,000 by 2029-30. Overall compensation per FTE (including pensions and other benefits) is projected to reach over $172,000 by 2029-30, largely driven by salaries and wages and other standard compensation.”

Overall, expenditures for the federal government increased 1.8% in the second quarter, led by higher purchases of goods and services and wages within the federal non-defence sector, according to an August 29 report by Statistics Canada. It noted: “the initial payment for the Robinson Superior legal settlement, increased employment insurance benefits paid, as well as funds provided to cover the current financial difficulties of Canada Post also contributed to the higher expenditures for the federal government in the second quarter.”

Economic Growth Forecasts in Doubt. Just this March 2025, the PBO the Canadian economy to grow by 1.7 per cent in 2025, but this was before the effect of the tariffs unfolding over the summer. There have been a variety of conflicting views on the outlook going forward:

• The Bank of Canada's January projection anticipated growth of around 1.8% for 2025. 
• The OECD projects Canadian growth to slow to 1.0% in 2025. 
• TD Economics: its latest forecast is -1.5% for Q2 2025, based on data released in late August 2025. 

Revenue Growth Declines. The PBO expected revenues to grow to close to $400 Billion by 2030 in March of 2025. However, since then, real gross domestic product (GDP) declined 0.4% in the second quarter of 2025, following a 0.5% gain in the first quarter.

Federal government revenue declined 4.2% in the second quarter. The key culprit was the decline in excise taxes due to the removal of the federal consumer carbon tax on April 1, 2025.

In addition, there were reduced income taxes from households and withholding taxes on non-residents in the second quarter. 

Borrowing Costs Eat Up Program Spending Room. The result of the lower revenue and increased expenditures was an acceleration in the net borrowing of the federal government in the second quarter. According to the Fraser Institute, “the Liberal Party platform shows the government expects to borrow $224.8 billion---$93.4 billion more than Trudeau planned to borrow. And that's before the new military spending.”

In addition, the think tank says, “the federal government will spend a projected $53.8 billion on debt servicing charges in 2024/25, which is more than what the government expects to spend on the Canada Health Transfer ($52.1 billion), and significantly more than it expects to spend on childcare benefits ($35.1 billion).”

Unemployment Reaches A Nine Year High. In the meantime, Canada's unemployment rate reached a nine year high of 7.1 per cent, according to Statistics Canada data released in August. That means more money will be needed to support those without work going into this fall.

Budget consultations conclude. Against this bad news, the federal government announced on September 3, the conclusion of its nationwide consultations ahead of Budget 2025, meeting with stakeholders in 26 cities across the country, hosting nearly 50 roundtables and 60 bilateral meetings. Topics included internal trade and labour mobility, addressing the impact of U.S. tariffs, advancing digital transformation including through artificial intelligence, manufacturing and innovation, immigration, and affordable housing.

Perhaps most important, since July 14, over 84,000 individual Canadians shared their view on the Canada.ca/your budget website. According to the government release, their input focused on building one strong economy, reducing everyday costs, and bolstering Canada’s defence and security.

Bottom Line. The new government notes that the insights gathered through its first budget consultations will play a vital role in shaping Budget 2025. Notably absent in all the releases is any mention of personal or corporate tax changes. It is not expected that there will be much tax relief.

Join us as we update Knowledge Bureau students on September 17 CE Savvy Summit, with the latest breaking news on tax changes and in particular the changes required to Audit Defence as governments scramble to cut costs in an increasingly austere environment for Canadians.

Guest Speakers include some of Canada’s foremost authorities including Evelyn Jacks, Kim Moody, Dr. Dean Smith. Register online by Sept. 10 for early-bird savings and check out the detailed agenda for speaker and session details.