Canadians can’t afford another Ottawa budget failure

A $92 billion budget deficit looms. Canadians need more than promises this time

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As Ottawa prepares its fall budget, Canadians should demand a clean break from the status quo. After a decade of unrestrained deficit spending, we are fiscally adrift: burdened by costly new programs and a bloated bureaucracy, and with little to show for it.

That’s why the Carney government must do more than tinker and finally deliver the kind of budget Canadians haven’t seen in years.

The previous Liberal government left office with a national debt nearing $1.4 trillion, having failed to balance the budget in its nine years in power. A growing share of tax dollars is now going just to service that debt.

While the government has pledged to reduce program spending by 15 per cent in the 2028-29 fiscal year through shrinking departments and cutting waste (after smaller reductions the previous two years), it is still on track to post a sizeable deficit of $92 billion for 2025-26, according to projections published by the C.D. Howe Institute. That should be a warning sign. Ottawa cannot rely on vague promises of restraint years down the road—it needs to act now.

Here is what the Carney government must do to get its finances in order:

1. It needs to roll back costly programs and reduce the size of government.

Under Justin Trudeau, the federal bureaucracy grew by nearly 100,000 people, a 38 per cent increase. Yet despite a considerable hike in personnel costs, Canadians would be hard-pressed to point to noticeable improvements in service delivery.

Real reform would look like the Chrétien model from the 1990s. Faced with persistent deficits, the Chrétien government acted decisively, cutting over 42,000 public sector jobs. A comparable 17.4 per cent reduction today could eliminate 64,000 jobs and save almost $10 billion annually.

The review should also cover new programs that depend on deficit spending and often overlap with provincial responsibilities.

For example, the federal dental plan is projected to cost taxpayers $13 billion over five years, while the proposed pharmacare plan will cost $13.4 billion per year by 2027-28. Rolling back such initiatives could yield substantial savings.

2. The government must remove excessive regulation that is strangling Canadian business.

Between 2006 and 2021, federal regulations increased by 37 per cent, reaching 320,000 in total. Statistics Canada estimates that this reduced real GDP growth by 1.7 percentage points, employment growth by 1.3 percentage points, and labour productivity growth by 0.4 percentage points over the same time period. Those numbers may seem abstract, but the effect is concrete: less growth, fewer jobs, lower productivity.

Canadian businesses spend about 768 million hours a year on compliance—the equivalent of 394,000 full-time jobs. In 2024 alone, red tape cost businesses nearly $51.5 billion—a hidden tax on productivity.

Is anyone surprised that entrepreneurship in Canada is on the decline? In the year 2000, three out of every 1,000 Canadians had started a business. By 2022, that rate had fallen to just 1.3 per 1,000, representing a nearly 57 per cent drop.

Had Ottawa maintained 2006 regulation levels, Canada would have seen a 10 per cent higher rate of new businesses entering the market in 2021.

3. The Carney government must scrap harmful policies that undermine our energy sector.

Regulations aimed squarely at Canada’s oil and gas sector are setting the country up for a rude awakening.

Take Ottawa’s oil and gas emissions cap, set to take effect next year. It aims to reduce emissions from this sector to 35 per cent below 2019 levels, but reports from Deloitte and the Parliamentary Budget Officer (PBO) confirm that it is effectively a production cap.

Oil and gas accounts for 3.3 per cent of national GDP in 2024, but the emissions cap would change that. Deloitte estimates that by 2040, this regulation would lower Canada’s GDP by one per cent, representing a $34.5-billion loss in constant 2017 dollars.

The cap would also cost 112,900 Canadian jobs by 2040. The numbers all point in the same direction: the policy is an economic self-inflicted wound.

Similarly, the PBO projects that to meet Ottawa’s emissions goal, oil and gas production would need to be 4.9 per cent lower than current forecasts over 2030-32.

For a country with the world’s fourth-largest natural gas reserves and as the third-largest exporter, such policies are reckless.

This fall, Canadians should not be presented with a budget that doubles down on the same policies that have already strangled business creation, driven away investment and suppressed living standards.

Canadians are long overdue for something we haven’t seen in years—a responsible budget.

Samantha Dagres is Communications Manager at the Montreal Economic Institute, an independent think tank with offices in Montreal, Ottawa, and Calgary.