Federal government fiscal projections
Sources: Government of Canada Federal Budget 2025 and Canoe Financial.
Canada’s 2025 federal budget answers a simple question: where does the money come from, and where does it go. The answer reveals priorities, trade offs, and a growing deficit that continues to shape future policy.
Revenue. Where it comes from.
The federal government expects to collect about $507 billion in revenue in 2025 to 2026. The three biggest contributors are:
Personal income tax
The largest funding source by far, at roughly $238 billion. Canadians themselves are the primary engine of the budget, contributing almost half of every dollar the government spends.
Corporate income tax
Businesses contribute $97 billion, the second largest source.
Goods and Services Tax (GST)
Consumption drives $54 billion through the GST.
Other revenue sources include excise taxes, employment insurance premiums, enterprise Crown corporations, and investment returns. But taken together, the story remains simple: personal and corporate income taxes fund most federal spending.
When revenues fall short of planned spending, the gap is filled with borrowing. In Budget 2025, that gap is large.
Spending. Where it goes.
Planned spending totals about $585 billion including actuarial losses, with a focus on three major areas:
Support for individuals
$144 billion in major transfers to persons
- Old Age Security and Guaranteed Income Supplement: $83 billion
- Employment Insurance benefits: $30 billion
- Canada Child Benefit: $30 billion
These programs represent direct cash support to households. They are predictable, indexed, and politically durable.
Support for provinces and municipalities
$111 billion through transfers
- Canada Health Transfer: $57 billion
- Canada Social Transfer: $19 billion
- Equalization and territorial financing: $29 billion
Health care remains the single biggest provincial transfer. Growth in this category continues to exceed revenue growth.
Direct program spending and operations
$266 billion on programs and government operations
- Indigenous reconciliation and services: $44 billion
- Infrastructure and housing initiatives: $27 billion
- Climate and natural resource programs: $18 billion
- International assistance: $20 billion
- Defence and security: $60 billion combined
This is where most new policy announcements appear.
Key initiatives gaining funding.
- Housing and infrastructure to address affordability pressures
- Defence modernization and procurement cycles
- Indigenous reconciliation funding commitments
- Climate related and natural resource transition programs
These areas are increasingly multi year and structural, not one time line items.
The deficit.
Even with more than half a trillion in revenue, expenses are rising faster.
- Deficit before actuarial losses: about $73 billion
- Net actuarial adjustments: about $5 billion
- Final projected deficit: $78 billion
Borrowing fills the gap and adds to debt servicing costs. Public debt charges are now $56 billion, making interest the fifth largest line item in the entire budget. Higher rates are translating into higher carrying costs on federal debt.
Budget 2025 projects a debt to GDP ratio of 42.4% and rising to 43.1% in 2027!
