{"id":21822,"date":"2025-11-05T06:54:52","date_gmt":"2025-11-05T06:54:52","guid":{"rendered":"https:\/\/www.rbc.com\/en\/?post_type=rbc_tl&p=21822\/"},"modified":"2025-11-07T22:37:01","modified_gmt":"2025-11-07T22:37:01","slug":"high-stakes-narrow-margins-canadas-federal-budget-bets-on-investment-led-growth","status":"publish","type":"rbc_tl","link":"https:\/\/www.rbc.com\/en\/thought-leadership\/economics\/featured-insights\/high-stakes-narrow-margins-canadas-federal-budget-bets-on-investment-led-growth\/","title":{"rendered":"High stakes, narrow margins: Canada’s federal budget bets on investment-led growth"},"content":{"rendered":"\n
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Overall, the story of Budget 2025 is as expected.<\/p>\n\n\n\n

There is big new spending and deficits that would be even larger without review savings. Buffers are slim against the two fiscal anchors of a balanced operating budget by 2028-29, and a declining deficit-to-GDP ratio. The debt burden goes up, and then sideways until at least the mid-2030s.<\/p>\n\n\n\n

But if new capital-focused spending successfully crowds in the hoped for $500 billion in private investment, the growth dividends could lead to a different outcome of plentiful buffers, and a declining debt ratio. Thus, focus must turn to implementation, and hope for a stable external environment.<\/p>\n\n\n\n

Budget 2025 provided more details for each of these elements, but still leaves much to clarify. With lofty expectations and short timelines, this was also expected, although the document could have gone further in a few areas.<\/p>\n\n\n\n

The new overarching fiscal objective of $500 billion in private investment implies it would override fiscal anchors, yet it\u2019s not clear how this would be measured. Unsaid is how much of new defence-aligned spending will put Canada on track to meet its NATO 2035 target.<\/p>\n\n\n\n

There is also room for interpretation on whether the budget lives up to the government\u2019s billing of transformational change, and pivot to capital-focused spending.<\/p>\n\n\n\n

Operating savings are large given the narrow review base even though they\u2019re lower-than-expected, and a portion is still unallocated. Under the government\u2019s definitions, the deficit can be entirely attributed to capital spending by 2028-29. At the same time, new capital spending introduced in the budget is only 36% of the accrual cost of total new spending, meaning new operating spending totals $12 billion per year on average.<\/p>\n\n\n\n

Our preview piece highlighted how Budget 2025 would not give us a final read on either the government\u2019s growth or fiscal management agendas. That\u2019s especially true for an evening attempting to digest a big, complex budget. But even once Budget 2025 is fully understood, what comes next will be just as important \u2013 the government will need to formalize its new framework and execute on implementation.<\/p>\n\n\n\n