Ottawa’s first fall-cycle budget in decades wraps a very large deficit in a shiny new “capital budgeting” story and a promise to catalyze $1 trillion of investment. The narrative is bold; the numbers rely on optimistic crowd-in assumptions, aggressive re-labelling of spending, and a growth turnaround that Canada hasn’t delivered in years.
What Ottawa says it’s doing
Reframed fiscal anchors. The government pledges to (1) balance day-to-day operating spending with revenues by 2028-29, and (2) keep a declining deficit-to-GDP ratio. It also touts a target to catalyze $500 billion of new private investment over five years, enabling “$1 trillion in total investment.”
Deficit math. The budget projects a $78.3 billion shortfall (2.5 per cent of GDP) in 2025-26, improving only to 1.5 per cent of GDP by 2029-30. Debt-to-GDP hovers in the 42–43 per cent range through the horizon.
Big-ticket positioning. “Building Canada strong” leans heavily on sovereignty/defence, housing/infrastructure, and productivity, with about $280 billion of five-year capital outlays intended to crowd in private dollars.
What’s actually new (and what isn’t)
Capital vs. operating split. A Capital Budgeting Framework debut to separate “investments” from operating spend—a presentational change with real political consequences for how deficits appear.
Tax: mostly continuity. No broad hikes/cuts to personal or corporate rates or capital-gains inclusion. Middle-bracket rate cuts proceed, but much of the tax code is left untouched.
Housing optics. GST relief for first-time buyers on new builds (caps apply), and repeal of the Underused Housing Tax from 2025 onward—both are eye-catching but unlikely to lift supply at the pace implied by the growth story.
Luxury-tax rollbacks (boats/aircraft). Scrapped after Nov. 4, 2025—a political lightning rod given the deficit.
Crypto/stablecoins. The budget window is used to advance a stablecoin framework; directionally positive for fintech competitiveness but light on specifics and supervisory plumbing.
Five critical problems
1) The “$1 Trillion” promise rests on heroic crowd-in assumptions
The plan leans on triggering $500 billion of private investment in five years. Ottawa cites productivity lifts and a per-capita GDP boost if half a trillion materializes. However, Canada’s investment and productivity trends have underperformed for years, and the text provides no binding mechanism that ensures private capital arrives at that scale or speed. Execution risk is enormous; shortfalls would blow holes in the growth and revenue narrative.
2) Capital budgeting risks obscuring the real fiscal stance
Re-classifying more outlays as “capital” helps meet the new “operating balance” anchor while still running large total deficits. This doesn’t change borrowing needs or interest-cost risk; it merely re-labels components of the deficit. Canada’s $78.3 billion hole and a debt ratio stuck in the low-40s still bind future choices if rates stay higher for longer.
3) The growth bridge is built over shaky geopolitics
The budget’s strategy presumes Ottawa can redirect trade and investment flows amid an escalating tariff environment with the U.S. and a soft domestic economy. Newsflow around new infrastructure and defence initiatives underscores the geopolitical pivot — but also signals higher near-term spending and uncertain payoffs. If external shocks persist, the deficit path will likely deteriorate.
4) Housing measures score optically, not structurally
GST relief for first-time buyers helps at the margin, but risks being capitalized into prices unless matched by credible, rapid supply expansion (permitting, labour, materials). Repealing the Underused Housing Tax removes a tool that, while imperfect, at least signaled vacancy discouragement; its removal deserves a clear replacement plan focused on supply and productivity in construction.
5) Missed opportunity on tax reform that drives productivity
Canada’s well-documented productivity slump called for broad-base, pro-investment tax reform (accelerated depreciation permanence, neutral cost recovery, R&D simplification, international tax certainty). Instead, Budget 2025 delivers targeted credits and tweaks (e.g., critical-minerals, SR&ED adjustments)—useful, but insufficient to shift the national investment frontier.
What to watch next (risk dashboard)
Interest-cost drift: If yields remain elevated, interest charges will crowd out discretionary programs faster than the budget projects.
Private-capital uptake: Track actual financial closes on the flagship infrastructure and manufacturing files versus the five-year schedule.
U.S. trade policy shocks: Any further tariff rounds will test Ottawa’s diversification bet and the macro baseline embedded in this budget.
Stablecoin rulebook details: Clarity on issuers’ reserve, audit, and redemption standards will determine whether Canada becomes a credible hub or cedes ground.
Bottom line
Budget 2025 is ambitious and rhetorically coherent—but ambition isn’t a substitute for credible delivery. Without faster permitting, rigorous project selection, disciplined procurement, true interprovincial coordination, and a broader tax-reform agenda, the plan risks becoming a very expensive exercise in re-labelling and hoping. The deficit is large, the growth lift is uncertain, and Canadians deserve a clearer, verifiable path from spending to productivity to prosperity.
Disclaimer: This story was created by Canadian Family Offices’ commercial content division on behalf of Foster & Associates.