Budget 2025: What It Does, Why It Matters, and Who Will Feel It Most
Budget 2025 marks a significant turning point in how the federal government plans, spends, and delivers public priorities. For more than ten years, federal budgets were shaped by rising program spending, pandemic-era demands, and broad affordability measures. This year, the federal government signals the start of a new phase: slower growth in day-to-day spending, major investment in long-term projects, and a stronger focus on national resilience. Although the deficit remains about $78 billion, the message is that Canada must protect itself in an unstable world, build long-term economic capacity, and offer targeted help with household costs. Additionally, despite the uncertainty, the federal government is making the case that Canada must use this period to strengthen its foundations rather than expand programs.
A New Fiscal Structure
The most important structural change in Budget 2025 is the introduction of a new budgeting method that separates long-term capital spending from regular operating costs. Long-term projects include housing developments, major transportation corridors, military equipment, digital systems, and national energy infrastructure. Operating costs include the public service, federal programs, benefits administration, and day-to-day functions.
By separating these two categories, the federal government is attempting to stabilize annual program spending while freeing capacity to make much larger multi-year investments in national infrastructure and security. The goal is to cover all operating expenses with revenue by 2028, with any remaining deficit tied to long-term projects rather than ongoing programs.
For departments, this means securing new program funding will be difficult, while capital-focused initiatives will have clearer pathways. For stakeholders, this shift means federal dollars will be concentrated in large, transformative projects rather than ongoing program expansion.
Economic Conditions Shaping the Budget
Budget 2025 has been built during a period of slow global and domestic growth. The economic assumptions underlying the budget are more conservative than in previous years, which influences every part of the fiscal plan. Key factors shaping the budget include:
· Slowing International Growth: Economic growth is weakening in the United States, slowing sharply in the European Union, and becoming less predictable in the People’s Republic of China. These global trends reduce demand for Canadian exports and create greater uncertainty in financial markets. Canada is heavily affected by these conditions, especially in manufacturing, forestry, and transportation.
· United States Tariffs: The most significant external shock comes from sharply increased tariffs in the United States, which are at their highest levels since the early twentieth century. These tariffs directly affect Canada’s ability to export key goods, including vehicles, metals, wood products, and minerals. The federal government highlights this as the largest immediate risk to Canada’s economic outlook.
· Domestic Fragility: Within Canada, wage growth remains slow, business investment is weak, and unemployment has risen above six percent. Households face inflationary pressure in housing and transportation. Private-sector forecasts project real economic growth of about one percent for each of the next two years.
Against this backdrop, the federal government has prioritized stability and long-term investment instead of short-term spending increases. As will be shown, the long-term investment has primarily concentrated on capital expenditures.
Where the Federal Government is Investing
Budget 2025 includes about $280 billion in long-term investment over five years. The four core investment categories are housing, infrastructure, defence, and improving business productivity.
Housing
Housing remains at the centre of public concern, and the federal government has chosen a supply-driven strategy. Rather than expanding subsidies, the budget focuses on increasing the number of homes built nationwide.
A new national housing organization, called Build Canada Homes, is now responsible for delivering large-scale housing projects through partnerships with provinces, municipalities, Indigenous governments, private developers, and non-profit organizations. Build Canada Homes aims to provide 50,000 housing units by the year 2030, using federal lands, modern construction methods, and large portfolio-based projects. Projects will include affordable, supportive, co-operative, and multi-unit housing.
The federal government is investing $13 billion over 5 years to launch this work. Municipal governments that move quickly on approvals, zoning changes, and infrastructure coordination will be prioritized for support.
Infrastructure
The budget allocates more than $115 billion to major infrastructure projects over five years. These investments include transportation networks, ports, rail corridors, highways, and energy transmission systems.
A new $5 billion fund will focus on improving trade corridors to help Canadian companies reach global markets. The federal government also plans to expand regional transportation links, support rural and northern connectivity, and strengthen digital systems that backstop economic growth.
Canada Infrastructure Bank will play a larger role in these projects, with federal direction focused on energy, transportation, and digital networks.
Defence and Security
Budget 2025 contains the largest defence and security investment in modern Canadian history. More than $81 billion over five years is dedicated to rebuilding the Canadian Armed Forces, modernizing equipment, strengthening digital and cyber systems, and increasing training capacity.
Funding includes support for recruitment and retention, updates to existing bases, expansion of domestic manufacturing for ammunition and specialized equipment, and investments in modern technology.
Canada expects to meet the NATO defence spending benchmark this year. It plans to reach much higher levels by the year 2035 through combined efforts across all orders of government.
Competitiveness and Productivity
The federal government continues to highlight Canada’s long-standing productivity challenges. Budget 2025 includes several measures intended to strengthen private-sector investment and improve long-term competitiveness. These include:
· Stronger support for research and development
· New incentives for businesses to upgrade machinery, equipment, and digital systems
· Investments in artificial-intelligence research and infrastructure
· Expanded support for critical minerals and clean-technology supply chains
Affordability Measures
While not considered one of the four core funding priorities, the budget does include targeted affordability actions but avoids large new programs. These measures include:
· A tax cut for middle-income households
· Removal of the federal consumer carbon price
· Automatic access to federal benefits for low-income individuals
· Reduced tolls and ferry fares in Atlantic Canada
Implications for Stakeholders
The changes outlined in Budget 2025 will be felt differently across the public, private, and non-profit sectors. While the federal government is concentrating its resources on long-term projects, it is also limiting the growth of regular programs, shifting both opportunities and pressures onto organizations that deliver services and drive economic activity. The following sections outline how these decisions are likely to affect municipalities, industries, non-profit organizations, and provincial governments, and what each group should prepare for as the new fiscal direction takes shape.
· Municipal Governments: Municipalities will be central to delivering federal housing and infrastructure goals. Fast approvals, efficient planning, and clear alignment with federal priorities will be essential to secure funding. Municipalities will also need to be cognizant of the conditions tied to federal funding and how the Provincial Priorities Act may affect the accessibility of that funding.
· Industry: Sectors linked to defence, construction, energy, critical minerals, and technology stand to gain. However, industries dependent on the United States markets face continued uncertainty due to tariffs.
· Non-Profit and Community Organizations: Most social-service and community-based programs remain at the same funding levels as last year. The budget introduces several administrative changes, including delayed reporting requirements, a pilot program offering duty relief for donated goods, and expanded federal rules on financial transparency. Operational challenges will increase as demand grows, but funding remains flat. Organizations will need to build partnerships, diversify revenue streams, and prepare for new compliance requirements.
· Provincial Governments: Provinces will be under pressure to coordinate permitting, workforce training, major projects, and energy systems with federal plans. Many federal transfers will come with conditions tied to housing and infrastructure results. The Provincial Priorities Act may continue to create barriers to funding accessibility.
Conclusion
Budget 2025 marks a clear turning point in federal fiscal policy. The federal government is choosing to restrain regular program spending, expand long-term capital investments, and respond to a changing global landscape with measures designed to strengthen national resilience.
This shift creates significant opportunities for sectors tied to construction, technology, defence, and infrastructure. At the same time, it places pressure on non-profit organizations, municipalities with limited capacity, and industries exposed to global trade disruptions.
The next several years will test whether Canada can deliver the major projects envisioned in this budget. Success will depend on how well governments, communities, and industries work together, the strength of public institutions, and the ability of communities and industries to deliver at scale and at speed.
