From the Fraser Institute

By Jake Fuss and Grady Munro

For the summer leading up to the 2025 fall budget, the Carney government has launched a federal spending review aimed at finding savings that will help pay for recent major policy announcements. While this appears to be a step in the right direction, lessons from the past suggest the government must be more ambitious in its review to overcome the fiscal challenges facing Canada.

In two letters sent to federal cabinet ministers, Finance Minister François-Philippe Champagne outlined plans for a “Comprehensive Expenditure Review” that will see ministers evaluate spending programs in each of their portfolios based on the following: whether they are “meeting their objectives” are “core to the federal mandate” and “complement vs. duplicate what is offered elsewhere by the federal government or by other levels of government.” Ultimately, as a result of this review, ministers are expected to find savings of 7.5 per cent in 2026/27, rising to 10 per cent the following year, and reaching 15 per cent by 2028/29.

This news comes after the federal government has recently made several major policy announcements that will significantly impact the bottom line. Most notably, the government added an additional $9.3 billion to the defence budget for this fiscal year, and committed to more than double the annual defence budget by 2035. Without any policies to offset the fiscal impact of this higher defence spending (along with other recent changes), this year’s budget deficit (which the Liberal’s election platform initially pegged at $62.3 billion) will likely surpass $70.0 billion, and potentially may reach as high as $92.2 billion.

A spending review is long overdue. Recent research suggests that each year the federal government spends billions towards programs that are inefficient and/or ineffective, and which should be eliminated to find savings. Moreover, past governments (both federal and provincial) have proven that fiscal adjustments based on spending reviews can be very successful—just look at the Chrétien government’s 1995 Program Review.

In its 1995 budget, the federal Chrétien government launched a comprehensive review of all federal spending that—along with several minor tax increases—ultimately balanced the federal budget in two years and helped Canada avert a fiscal crisis. Two aspects of this review were critical to its success: it reviewed all federal spending initiatives with no exceptions, and it was based on clear criteria that not only tested whether spending was efficient, but which also reassessed the federal government’s role in delivering programs and services to Canadians. Unfortunately, the Carney government’s review is missing these two critical aspects.

The Carney government already plans to exclude large swathes of the budget from its spending review. While it might be reasonable for the government to exclude defence spending given our recent commitments (though that doesn’t appear to be the plan), the Carney government has instead chosen to exclude all transfers to individuals (such as seniors’ benefits) and provinces (such as health-care spending) from any spending cuts. Based on the last official spending estimates for this year, these two areas alone represent a combined $254.6 billion—or more than half of total spending after excluding debt charges—that won’t be reviewed.

This is a major weakness in the government’s plan. Not only does this limit the dollar value of savings available, it also means a significant portion of the government’s budget is missing out on a reassessment that could lead to more effective delivery of services for Canadians.

For example, as part of the 1995 program review, the Chrétien government overhauled how it delivered welfare transfers to provincial governments. Specifically, the federal government replaced two previous programs with a new Canada Health and Social Transfer (CHST) that addressed some major flaws with how the government delivered welfare assistance. While the transition to the CHST did include a $4.6 billion reduction in spending on government transfers, the new structure gave the federal government better control over spending growth in the future and allowed provincial governments more flexibility to tailor social assistance programs to local needs and preferences.

In addition to considering all areas of spending, the Carney government’s spending review also needs to be more ambitious in its criteria. While the current criteria are an important start—for example, it’s critical the government identifies and eliminates spending programs that aren’t achieving their stated objectives or which are simply duplicating another program—the Carney government should take it one step further and explicitly reflect on the role of the federal government itself.

Among other criteria that focused on efficiency and affordability of programs, the 1995 program review also evaluated every spending program based on whether government intervention was even necessary, and whether or not the federal government specifically should be involved. As such, not only did the program review eliminate costly inefficiencies, it also included the privatization of government-owned entities such as Petro-Canada and Canadian National Railway—which generated considerable economic benefits for Canadians.

Today, the federal government devotes considerable amounts of spending each year towards areas that are outside of its jurisdiction and/or which government shouldn’t be involved in the first place—national pharmacare, national dental care, and national daycare all being prime examples. Ignoring the fact that many of these areas (including the three examples) are already excluded from the Carney government’s spending review, the government’s criteria makes no explicit effort to test whether a program is targeting an area that’s outside of the federal purview.

For instance, while the government will test whether or not a spending program fits within the federal mandate, that mandate will not actually ensure the government stays within its own jurisdictional lane. Instead, the mandate simply lays out the key priorities the Carney government intends to focus on—including vague goals including, “Bringing down costs for Canadians and helping them to get ahead” which could be used to justify considerable federal overreach. Similarly, the government’s other criterion to not duplicate programs offered by other levels of government provides little meaningful restriction on government spending that is outside of its jurisdiction so long as that spending can be viewed as “complementing” provincial efforts. In other words, this spending review is unlikely to meaningfully check the costly growth in the size of government that Canada has experienced over the last decade.

Simply put, the Carney government’s spending review, while a step in the right direction, is missing key elements that will limit its effectiveness. Applying key lessons from the Chrétien government’s spending review is crucial for success today.

Jake Fuss

Director, Fiscal Studies, Fraser Institute

Grady Munro

Policy Analyst, Fraser Institute