David Clinton

Based mostly on their 2024 budget, the federal government has promised $2.4 billion in support of artificial intelligence (A.I.) innovation and research. Given the potential importance of the A.I. sector and the universal expectation that modern governments should support private business development, this doesn’t sound all that crazy.

But does this particular implementation of that role actually make sense? After all, the global A.I. industry is currently suffering existential convulsions, with hundreds of billions of dollars worth of sector dominance regularly shifting back and forth between the big corporate players. And I’m not sure any major provider has yet built a demonstrably profitable model. Is Canada in a realistic position to compete on this playing field and, if we are, should we really want to?

First of all, it’s worth examining the planned spending itself.

• $2 billion over five years was committed to the Canadian Sovereign A.I. Compute Strategy, which targets public and private infrastructure for increasing A.I. compute capacity, including public supercomputing facilities.
• $200 million has been earmarked for the Regional Artificial Intelligence Initiative (RAII) via Regional Development Agencies intended to boost A.I. startups.
• $100 million to boost productivity is going to the National Research Council Canada’s A.I. Assist Program
• The Canadian A.I. Safety Institute will receive $50 million

In their goals, the $300 million going to those RAII and NRC programs don’t seem substantially different from existing industry support programs like SR&ED. So there’s really nothing much to say about them.

And I wish the poor folk at the Canadian A.I. Safety Institute the best of luck. Their goals might (or might not) be laudable, but I personally don’t see any chance they’ll be successful. Once A.I. models come on line, it’s only a matter of time before users will figure out how to make them do whatever they want.

But I’m really interested in that $2 billion for infrastructure and compute capacity. The first red flag here has to be our access to sufficient power generation.

Canada currently generates more electrical power than we need, but that’s changing fast. To increase capacity to meet government EV mandates, decarbonization goals, and population growth could require doubling our capacity. And that’s before we try to bring A.I. super computers online. Just for context, Amazon, Microsoft, Google, and Oracle all have plans to build their own nuclear reactors to power their data centers. These things require an enormous amount of power.

I’m not sure I see a path to success here. Plowing money into A.I. compute infrastructure while promoting zero emissions policies that’ll ensure your infrastructure can never be powered isn’t smart.

However, the larger problem here may be the current state of the A.I. industry itself. All the frantic scrambling we’re seeing among investors and governments desperate to buy into the current gold rush is mostly focused on the astronomical investment returns that are possible.

There’s nothing wrong with that in principle. But “astronomical investment returns” are also possible by betting on extreme long shots at the race track or shorting equity positions in the Big Five Canadian banks. Not every “possible” investment is appropriate for government policymakers.

Right now the big players (OpenAI, Anthropic, etc.) are struggling to turn a profit. Sure, they regularly manage to build new models that drop the cost of an inference token by ten times. But those new models consume ten or a hundred times more tokens responding to each request. And flat-rate monthly customers regularly increase the volume and complexity of their requests. At this point, there’s apparently no easy way out of this trap.

Since business customers and power users – the most profitable parts of the market – insist on using only the newest and most powerful models while resisting pay-as-you-go contracts, profit margins aren’t scaling. Reportedly, OpenAI is betting on commoditizing its chat services and making its money from advertising. But it’s also working to drive Anthropic and the others out of business by competing head-to-head for the enterprise API business with low prices.

In other words, this is a highly volatile and competitive industry where it’s nearly impossible to visualize what success might even look like with confidence.

Is A.I. potentially world-changing? Yes it is. Could building A.I. compute infrastructure make some investors wildly wealthy? Yes it could. But is it the kind of gamble that’s suitable for public funds?

Perhaps not.

From the Fraser Institute

By Tegan Hill and Grady Munro

A recent survey indicates that the majority of Canadians feel worse off now than in 2020. New data from Statistics Canada show these feelings aren’t unfounded, and that Canadians indeed suffer a worse standard of living than they had in recent years.

According to the survey, 61 per cent of respondents said they are financially worse off than they were before the pandemic, while 89 per cent find it harder to manage expenses on everyday items such as food and shelter. In other words, most Canadians feel they have a lower standard of living than they did in recent years.

The new numbers from Statistics Canada show that inflation-adjusted (GDP)—the final value of all goods and services produced in the economy—shrank by 0.4 per cent during the second quarter of 2025 (i.e. from the beginning of April to the end of June). Population growth was essentially flat during those same three months, meaning inflation-adjusted per-person GDP—a broad measure of individual living standards— declined to $58,855 as of July 2025.

The decline in per-person GDP this quarter may be in part driven by U.S. tariffs, which began taking effect in March. And while Canada previously enjoyed two consecutive quarters of growing per-person GDP at the end of 2024 and beginning of 2025, it’s likely that Canadian businesses and consumers alike shifted spending forwards in order to avoid threatened tariffs. Put simply, per-person GDP growth in previous two quarters may have been fuelled by a shift in spending, which also helped to set up the observed slowdown in economic activity once tariffs began to take effect.

However, Canadian living standards have been stagnant since long before President Trump retook office—indeed, the current standard of living is below the level it was in the middle of 2019 ($59,905) before the pandemic. Moreover, stagnant living standards aren’t a universal problem. For perspective, per-person GDP (adjusted for inflation) in the United States grew by 11.0 per cent from mid-2019 to mid-2025.

Simply put, not only do Canadians feel that they are worse off than in recent years, the data shows they actually are. As such, governments across the country must implement policies that promote economic growth.

Policymakers at all levels of government have discussed the importance of strengthening the economy through various policies, including through removing interprovincial trade barriers and calls for additional tax relief for Canadians. Interprovincial trade barriers inhibit the free flow of goods and services between provinces, and uncompetitively high taxes make Canada less attractive to top talent while also discouraging productive economic behaviour like work, savings, investment and entrepreneurship. Both of these effects act as a drag on the economy, and as such policymakers are correct to highlight these areas.

However, one area that falls under the radar is the growing mountain of government debt in Canada. The persistence of annual budget deficits—where government spends more than it collects in revenues, and must borrow money to make up the difference—in recent years has pushed combined federal and provincial net debt (total debt minus financial assets) to a projected $2.30 trillion as of 2024/25. Despite a growing body of evidence that links higher government debt to slower economic growth (this can happen for many reasons), the federal government along with many provinces plan to continue running deficits and grow the mountain of debt. For perspective, one study found that reducing Canada’s debt to GDP ratio—the size of Canada’s debt relative to the economy—to pre-pandemic levels could boost annual incomes for an average employee by approximately $2,100 (inflation-adjusted). Put simply, governments across the country need to lower spending, balance their budgets, and begin paying down their respective debt burdens.

Not only do Canadians feel they are worse off than they were in recent years, new data shows that living standards actually are worse off. To help turn things around, governments across the country must pursue policies that promote economic growth.