Nation-building without people: Maytree’s response to the 2025 Federal Budget

At Maytree, our mission is to transform systems, so they respect, protect, and fulfill human rights. From that vantage point, the 2025 Budget offers a few bright spots but ultimately represents a missed opportunity. At a moment that calls for nation-building, we had hoped the federal budget would acknowledge the growing crises of poverty, homelessness, food insecurity, and inequality, seeing them not just as social challenges, but as economic liabilities that undermine both productivity and cohesion. In the end, the budget offered nothing new of significance to address these issues and didn’t respond with the urgency needed.

On the bright side, the government appears to have avoided making cuts to many of the most critical transfers and programs, and that is worth recognizing. Nevertheless, the government’s long-term priorities as expressed in its first budget suggest we may be in for several years of fighting to protect a broken status quo rather than building toward a more equitable society.

With that, let’s dive in.

The big picture

Despite the fanfare surrounding a “transformational” budget, what the federal government tabled on November 4 feels in some ways quite ordinary, with most of the largest items announced weeks or months ago. Yes, the projected deficit for 2025-26 has nearly doubled since the last fiscal update, but it remains modest relative to the overall budget, nudging the federal debt-to-GDP ratio up only a couple of percentage points – hardly a surprise in the context of today’s economic challenges.

Likewise, while the scale of new spending on infrastructure, defence, investment tax credits, and targeted support for strategic industries is substantial, the solutions are not new. The innovation here is largely in the amounts of money invested, not the new ideas brought forward. The industries that drove Canada’s economy in the 20th century – harvesting, building, and making things – are given special attention, with much less interest shown in the rest of the economy or in the human capital and social infrastructure that underpins it. While attracting private investment is important, the budget doesn’t sufficiently address the ways in which capital in Canada is prone to bad behaviour.

Spending less

True to its “spend less to invest more” mantra, the government is counting on a five per cent cut to direct program expenditures by 2028-29 to offset some of its new spending. (Major transfers to individuals and other levels of government have been deemed out of scope.) These savings, targeted at about $60 billion over five years, come mostly from reducing the size of the public service by 40,000 positions or roughly 10 per cent of the peak in 2023-24. On one hand, that’s a lot of jobs lost and a lot of people who were doing work that benefitted Canadians. On the other, it’s hard to overstate just how quickly the public service grew in recent years, and these cuts will return it to its per-capita size in 2019.

While the budget lists some of the ways the government is saving money, it tends toward vague statements and avoids itemizing the impacted programs. An annex on the cost-cutting exercise reports the amount of savings identified in each department, but the numbers are grouped into ambiguous categories of bureaucratese: “modernizing government operations,” “streamlining program delivery,” and “recalibrating government programs.” (These categories should not be confused with “optimizing productivity in government,” which is different and will apparently result in $8 billion in savings over five years).

We did learn that several additional departments have been excluded from the worst of the cost-cutting exercise, including Women and Gender Equality, Indigenous Services Canada, and Crown-Indigenous Relations. This is excellent news, as cuts to these departments would have fallen on some of the most marginalized.

We’ll be keeping our eye out for more details on what programs will be impacted and how.

Investing more

As the budget touts, all this modernizing, streamlining, recalibrating, and optimizing means more money for other things – a significant $141 billion more over five years. Below we highlight the top five investments (on an accrual basis), which together account for 85 per cent of new spending.

1. Defence spending is the single largest new expense, something we must become accustomed to if Canada is to meet its 2035 NATO spending targets. At about $59 billion over five years (approximately 42 per cent of new spending), it happens to be roughly equal to all the total cost savings the government is expecting over the same five years. We would prefer if some of this money went instead to meeting Canada’s 2030 poverty reduction target, which Canada is not on track to achieve. On an optimistic note, if invested well here at home, this spending could generate substantial economic activity and be leveraged to also advance social goals. For example, Maytree has urged the government to build large quantities of housing on military bases as a way to make rapid progress toward new housing targets.
2. The second largest expense is the government’s middle class tax cut, which weighs in at $27 billion over five years (approximately 19 per cent of new spending). Unfortunately, the tax cut benefits almost no one living in poverty and almost all tax filers in the top income bracket. Again, this money would be better spent helping those who need it most. One small comfort is that the government is adding a new Top-Up Tax Credit at a cost of about $15 million a year to address rare cases where tax filers are worse off because of the reduced value of non-refundable tax credits.
3. Investments in housing are the third largest expense, with a five-year cost of $13 billion (approximately 9 per cent of new spending). Build Canada Homes (BCH) accounts for $7 billion (including $1 billion to build transitional and supportive housing), and the GST cut for first-time home buyers of new homes is another roughly $4 billion. The budget offers little in the way of new details about BCH beyond what was previously announced. Next to the $59 billion for defence, however, the government’s housing investment looks decidedly less ambitious than it did at first glance, especially when spread across the country and across five years. On a cash basis, the $13 billion invested in BCH over five years is not enough to meet the need for deeply affordable units. Maytree has argued that Build Canada Homes could deliver 200,000 non-market housing units annually – 40 per cent of federal targets – if supported by $40 billion in annual cash investment. By retaining government ownership of these units and collecting rent to offset amortization, the cost to the government’s bottom line would be only a fraction of this number.
4. The fourth largest expenditure consists of several initiatives under the “protecting strategic industries” banner that together reach $12 billion over five years (approximately 8 per cent of new spending). This is mostly money that will be given to ailing businesses, but some of it will also help displaced workers. Notably, the budget again ignored calls to reform Employment Insurance, so it provides adequate support to more workers.
5. Rounding out the top five is the government’s ramped-up infrastructure spending at an additional cost of $9 billion over five years (approximately 6 per cent of total spending).

The combined cost of all other budget investments is about $21 billion over five years, accounting for the remaining 15 per cent of new spending. Except for Build Canada Homes, which may eventually result in many more deeply affordable housing units, the federal budget offers little of sufficient magnitude to significantly improve the lives of the poorest among us.

Capital vs operating spending

Before moving on, it’s worth adding a quick word about the government’s desire to build a conceptual wall between operating and capital spending. This choice paints operating spending as something to be begrudgingly tolerated, while erroneously equating investment with capital spending.

The government’s interest in this framing is driven by a desire to show progress toward a balanced budget. This is an understandable impulse, but it is built on a foundation of sand. To make the math work, the budget tries to link the deficit to one type of expense and not another. If our total spending on capital is larger than our deficit, the argument goes, then we are only borrowing to invest in a brighter future. But as Andrew Coyne points out, one could just as easily declare that our deficit is related to some other area of spending, such as financing our debt. You can label spending however you want, but it still must be paid for.

Sadly, the government has tied its own hands with this political messaging, making it much harder to invest outside of capital spending in the coming years. This approach suggests we may be in for a prolonged period of underinvestment in our greatest asset: our people.

What about the social safety net?

The budget praises income supports like the Canada Child Benefit and the Canada Workers Benefit as examples of social programs that protect Canadian culture, values, and identity, but there are no “generational” investments here.

There are, however, several small but important tweaks. For example, the budget offers a plan to reduce the cost of applying for the new Canada Disability Benefit (CDB). It earmarks about $116 million over four years, beginning in 2026-27, for a one-time supplemental payment of $150 to each person who successfully qualifies for the required Disability Tax Credit certification and begins to receive the CDB. It is also reassuring that the budget reiterates the government’s intention to exempt CDB payments as income under the Income Tax Act in forthcoming legislation, ensuring the value of the benefit is not taxed and minimizing negative interactions with other tax-based benefits.

Unfortunately, the budget makes no ongoing improvements to the adequacy of income security programs for people with low incomes. Calls from disability advocates to raise the CDB benefit above the current $200 a month, for example, continue to be ignored. This omission is especially glaring considering the government’s own National Advisory Council on Poverty just released its annual report at the end of October calling for new or expanded income supports to raise incomes to at least Canada’s Official Poverty Line. Not having enough income is also the most cited reason among people who are unhoused for their current episode of homelessness – again, a finding that comes from the government’s own nationally coordinated survey.

We’re choosing to be optimists and hope that the government will consider ways to strengthen the social safety net in the near future, especially for single working-age adults and single parents who face the highest levels of poverty and housing need.

Getting excited about benefit administration

A couple of small items in the budget have caused unusual amounts of discussion here at Maytree, thanks to our interest in the minutiae of benefit administration. We’re guessing you haven’t read as much about these in the mainstream budget coverage, but don’t worry, we’ve got you covered.

Automatic tax filing: Building on the October 10 announcement to begin automatic tax filing for the 2026 tax year, the budget will change the Income Tax Act to allow the CRA to file tax returns on behalf of “eligible individuals with lower incomes in simple tax situations” – generally those who make less than the federal Basic Personal Amount of $16,129. This is projected to help 1 million people in 2026 and grow to 5.5 million by 2028. The Notice of Ways and Means Motion buried deep in the budget suggests the government has several eligibility criteria in mind, including restricting automatic tax filing to people who have not filed a return for at least three years.

Automatic tax filing is important because it will improve access to income-tested benefits such as the GST/HST credit that are delivered through the tax system. Consultations are expected on the details of what this could look like and how to provide this service at scale, and the CRA will receive $71 million over five years to implement the new services.

It is concerning, however, that the expenditure tables project this new initiative will only cost the government $103 million by 2029-30. Split among 5.5 million people, that is less than $20 each, so it is unclear how these numbers connect. Furthermore, unless plans are accelerated in future budgets, the treasury clearly believes the government is still many years away from realizing automatic tax filing at any meaningful scale.

It is also notable that the government is promising only automatic federal benefits. We will be pressing the government to make sure that people can also access the provincial/territorial benefits to which they are entitled. Some of these, such as those that depend on paying rent, currently require additional documentation. To make sure people with low incomes receive their full benefits, governments will need to work together as the new system is rolled out.

Real-time employer reported income information pilot: Buried in a table about creating a more “efficient and effective” government lies a reference to a new two-year pilot project headed by Employment and Social Development Canada. With funding of $29 million spread over two years from the Employment Insurance (EI) operating account, civil servants will be tasked with assessing whether EI eligibility and entitlement can be determined accurately and securely using real-time payroll information. Expected benefits to EI include reducing the employers’ reporting burden, improving program and service delivery, and streamlining employers’ and employees’ interactions with the federal government.

For a bit of context, back in 2021, the federal budget announced funding for the first phase of an “ePayroll project” that would explore how to create a new system for real-time employment income reporting to the CRA. Information about this project hasn’t been talked about publicly since, so clarity on the government’s intention to focus on EI is welcome.

But why do we care about an information-related project, and what does that have to do with our work at Maytree? While the measure announced in the budget is just a pilot at this point, having real-time information about the incomes of Canada’s workers raises some important questions for policymakers about how benefits could be made more responsive to people’s circumstances.

A recent report commissioned by Maytree explores the potential role of this new real-time income information system in benefit design for some of Canada’s most integral social safety net programs, including social assistance and the Canada Child Benefit. And while the report suggests that it might be able to support getting EI beneficiaries their payments faster, it also calls for the government to exercise caution in its use. Importantly, the government will need to meaningfully engage with workers, especially those with fluctuating employment incomes, to understand how this new system could impact them. We look forward to hearing more details about the pilot and hope there’s an opportunity for the public to add their input into this process.

Other highs and lows

The federal budget is ginormous and includes several smaller items of interest to advocates for social and economic rights. Below are some quick highs and lows worth noting.

• High: The budget makes funding for the National School Food Program permanent, meaning more kids will continue to get the school meals they need.
• Low: The budget pretends the government axed the carbon tax to make life more affordable. They neglected to mention that by eliminating the accompanying Canada Carbon Rebate, low-income families are now worse off than before.
• High: Several banking changes will make life easier, particularly for people with low incomes. The budget promises quicker access to cashed cheques, the possibility of reduced bank fees, and new legislation on open banking that would give Canadians more control and portability of their financial data.
• Low: The budget allocates another $123 million for the government to continue collecting overpayments of COVID benefits, admitting that this “could impose a burden on low-income Canadians.” It already has. While the government has shown little interest in going after businesses that wrongly claimed the Canada Emergency Wage Subsidy, the CRA continues to pursue people with low incomes over their individual benefits, leaving a trail of destruction in its wake.
• High: The budget promises a refundable tax credit of up to $1,100 annually for personal support workers in provinces that don’t yet have a deal for wage increases. We hope someday those who care for us and our loved ones will all receive decent wages.
• Low: The budget proposes to end the luxury tax on private yachts and jets, costing the treasury $135 million over five years. Apparently, those rich folks need the money more.
• High: The budget is increasing investment in youth jobs programs. It’s not enough given the scale of youth unemployment and the long-term costs this may have on individuals and society, but it’s a welcome start.
• Low: The budget promises it will “responsibly manage immigration to alleviate pressures on housing demand,” contributing to a narrative that immigrants are to blame for the high cost of housing. In fact, the role of immigration is negligible next to the decades of government underinvestment that got us to this place. On top of that, the budget offers no funding beyond fiscal 2025-26 to support asylum claimants with emergency shelter assistance. Toronto Mayor Olivia Chow has warned that cuts to the federal Interim Housing Assistance Program, combined with a lower Canada Ontario Housing Benefit allocation, will put enormous stress on the City’s homelessness population.
• High: As announced prior to budget day, the government is restoring funding to Women and Gender Equality Canada. Kudos to the women’s movement for speaking out and winning.
• Low: Another major housing document, another missed opportunity to recognize human rights. Despite the right to housing being the central principle of the National Housing Strategy Act, and one that is supposed to guide national housing policy, the government appears to be avoiding the topic. It’s too bad, because Canada could benefit from a rights-based approach to housing policy, especially when homelessness is growing across the country.
• High: The budget promises action to protect federally regulated workers against wage theft. This is great news, even if most of the problem lies with provincially regulated employers. We’d love to see Ontario take a page from the federal government and address the $200 million in wages that have been stolen from workers over the past decade.
• Bonus: Something to sing about! The government is working with the CBC to explore Canada’s participation in the Eurovision contest. It’s about time.

Verdict

The long-anticipated 2025 federal budget is not as exciting as many expected it to be, with most of the major initiatives having already been announced. It did, however, deliver on Prime Minister Carney’s top priority: investing more (especially on defence) and spending less (mainly by reducing the size of the public service).

The missing ingredient in the government’s nation-building recipe is people, especially those who live on low incomes and who continue to struggle with the high cost of living.

For a true “Canada Strong” approach, the government needs to start seeing social programs as nation-building projects worth investing in. We are optimistic the government will rediscover such a holistic approach as it finds its footing.