Budget 2025: Putting Canadians back in control (in a moment when everything feels out of their control)

On November 4, 2025, Prime Minister Carney’s Finance Minister, François-Philippe Champagne, delivered his government’s first federal budget. Budget 2025 marked a clear break from the policies of former-Prime Minister Trudeau. This budget was positioned as making the sacrifices Canada needs to address the geopolitical reordering the world is experiencing in 2025.

Highlights at a glance

• Clean and conventional energy, as well as critical minerals are Canada’s best economic prospects
• Buy Canadian is the new official policy for federal procurement, but also the new ethos for private sector engagement with the government
• Ottawa wants big things built
• Canada’s pivot on defence spending creates opportunity for “dual use” investments, which are defined broadly
• Big spending, even at the cost of historically large deficits and ongoing debt levels

Big spending, big deficits, big gamble

Carney is betting that Canadians – and debt markets – will accept structural deficits for now as the cost of getting through this second Trump Administration and the upending of former trade relationships. It is a political gamble, but one Carney is confident will work.

The real test will be how businesses, investors, and financial markets react in the short- and medium-term. The political gamble pays off if Canada’s economy begins to evolve as Carney hopes.

Government spending reductions

In contrast to his predecessor, Prime Minister Carney promised an aggressive expenditure review to make the federal government operate with greater efficiency and focus. Budget 2025 announced $60 billion in cost reductions over 5 years, which will include a 10% reduction in federal employee headcount – 40,000 positions in all.

Productive tax breaks

Budget 2025 re-committed to a suite of previously announced changes to incentivize corporate investments in R&D, machinery and equipment, and other large capital expenditures. The Scientific Research and Experimental Development (SR&ED) tax incentive will be enhanced, and a series of accelerated Capital Cost Allowance enhancements will try to attract corporate spending to make Canada’s economy more productive.

Personal Income Tax reductions in Budget 2025, under the guise of enhancing affordability, are designed to pre-empt criticism that the Carney government is only focused on breaks for corporations. Canadian taxpayers will each save up to $420 per year at a cost of more than $5 billion annually, which risks making this an invisible benefit at a big fiscal cost.

Canada’s new industrial strategy

The Carney government previously announced a $5 billion Strategic Response Fund intended to help Canadian firms affected by US tariffs with retooling and new market access. This was the first, and most convenient step in a series of initiatives designed to foster the evolution of Canada’s productive economy. Budget 2025 announced several more, including new financing tools in critical minerals projects that would allow for equity investments and offtake agreements. Canada has joined the U.S. in getting into the business of financing critical minerals operations.

Buy Canadian

The federal government is imposing on itself a requirement to move from “best efforts” to a clear obligation to procure from Canadian suppliers or, where none are available, foreign suppliers who have Canadian content or are from “trusted partners”. The vague terms are by design to allow the government to decide which partners it trusts the most in a given moment. But the intent is clear: end Canada’s narrow focus on lowest bids and open processes to ensure we procure more Canadian goods.

While this is explicit in Budget 2025, the real Buy Canadian policy will be implemented beyond the written procurement rules. Companies who have or are seeking federal funding should expect this to be the new environment for interacting with Ottawa. There will be a level of expectation bordering on a demand that federally funded companies, non-Canadian investors who require regulatory approval, or those companies with “asks” before the federal government respond to the Buy Canadian ethos.

Defence industrial strategy

Budget 2025 attempts to make more concrete Canada’s rhetoric around meeting NATO’s 5% spending target, which Canada claims it will meet by 2035. This step-change in spending is driven by three initiatives: 1) reinvesting in Canada’s military; 2) expanding domestic defence manufacturing capacity; and 3) redefining what is counted as dual civilian-military use.

In this latter category, initiatives like the new Arctic Infrastructure Fund make clear that Canada will define as many projects as possible as “dual use” to boost the total. The much-awaited Defence Industrial Strategy relies heavily on financial supports for sectors that the government now views as dual use, such as: life sciences, automotive, aerospace, quantum technology, and critical minerals.

Communications spin aside, this posture creates opportunities for those who have projects or business activities that are plausibly dual use to find a willing audience in Ottawa. However, companies should be mindful that support for Canadian defence purposes is a double-edged sword. Funding and regulatory approval might be more readily available, but companies should weigh any potential stakeholder backlash. Similarly, projects or business activities tied to national defence usually come with government strings attached.

Building big / many small things

The previously announced Major Projects Office is intended to fast-track nation-building projects and coordinate federal financing to help build projects faster. Budget 2025 packages this with Build Canada Homes, an entity focused on increasing the pace of homebuilding, and is trying to bring existing financing tools under one-stop-shops for these different areas.

Companies and investors who are active in large industrial or resource projects, or who operate in the residential housing sector, have an opportunity to seize a moment when the federal government is eager to see things built. But the most appealing projects will be those that also plan for and incorporate the Buy Canadian – and “Sell Canadian” – ethos of the day.

Climate competitiveness

Before he was Prime Minister, Mark Carney pushed for aggressive policies to combat climate change. As Prime Minister, he immediately canceled the consumer carbon tax and signaled further changes to carbon pricing in Canada in the name of affordability. Budget 2025 announced a foundational pivot for Canada in the Climate Competitiveness Strategy: a shift from primarily regulatory-driven mandates to an investment-based approach.

Framed in the language of “updating” and “negotiating”, the federal government appears to be moving towards lessening the ambition to force a green transition in the next two decades in favour of pragmatism. Canada will still pursue lower emissions as a “competitive advantage” for GHG intensive sectors to ensure access to markets that prioritize sustainability. In support of this, the government will pivot away from Trudeau-era policies – including emissions caps – and will focus on the deployment of emissions reducing technology at scale.

However, there is now opportunity for stakeholders to help shape the future rules and overall posture through thoughtful and strategic engagement with provinces and territories, government of destination markets, as well as the Government of Canada directly.

Trade diversification

Prime Minister Carney recently promised that Canada would double its non-U.S. trade balance by 2035, and Budget 2025 fills in some of the details. These include expanding export finance activities through Export Development Canada for critical minerals, energy, clean technology, infrastructure, and defence, and launch a $2 billion concessional trade finance envelope to encourage international partners to buy Canadian.

A suite of other, minor funding initiatives points towards a more important trend: while the Government of Canada’s rhetoric touts the trade potential in “Europe and the Indo-Pacific Region”, the concrete measures in Budget 2025 clearly show that Canada is further along with plans to expand trade with Europe. For companies in Europe, the opportunities are immediate and Ottawa’s doors are open. For companies in the Indo-Pacific, thoughtful preparation and careful engagement can help bridge the gap with Canadian officials and enable a first-mover advantage.

Political context

When Mark Carney took over as Prime Minister, he promised to chart a different path from his predecessor. Budget 2025 looks nothing like what Prime Minister Trudeau’s government would have tabled, despite many of the same Cabinet Ministers and political staff putting it together. The themes and specific commitments are closer to what would have been expected from a Conservative government.

The three opposition parties will level their criticisms, as they always do, but ultimately, we expect the budget will pass the necessary votes. Opposition MPs have tactics they use to avoid voting “yes” without actually voting “no” and we may see those used here. Either way, the Carney Government will have their opportunity to try to implement the “big things” promised in Budget 2025.

What this means for your engagement with government

• Align Your Efforts with the “Buy Canadian” Ethos: Whenever possible, companies seeking federal funding, regulatory approval, or procurement opportunities should emphasize Canadian content and partnerships. Demonstrate clear alignment with the new “Buy Canadian” policy — this is now an explicit expectation for engagement with Ottawa.
• Frame Your Projects as “Nation-Building” and Ready to Build: Highlight how your projects contribute to Canada’s nation-building ambitions. Leverage the federal government’s eagerness to “build big” (or many small things) by positioning your proposals as shovel-ready and designed to incorporate Canadian suppliers and labour.
• Position Your Activities as “Dual Use”: If your business operates in sectors like life sciences, automotive, aerospace, quantum technology, or critical minerals, frame your projects as having both civilian and defence applications. This “dual use” categorization can unlock new funding and regulatory pathways — but be mindful of potential stakeholder scrutiny.
• Engage Proactively on Climate and Competitiveness Policy: The government is shifting from regulations to investment-based climate strategies. Stakeholders should engage early with federal and provincial officials to help shape new emissions reduction frameworks and advocate for pragmatic, technology-driven solutions.