OTTAWA — The Liberal government wants to find at least $21.5 billion in annual savings from the federal budget by 2028 — significantly more than the reductions Prime Minister Mark Carney promised during the recent election campaign — as the new administration looks for fiscal room after pledging huge sums to the Canadian military while promising to keep expenses under control.
The bigger-than-expected drive to reduce spending was billed as “ambitious” in a letter sent to all cabinet members Monday by Finance Minister François-Phillippe Champagne and Treasury Board President Shafqat Ali.
Audrey Milette, a spokesperson for Champagne, confirmed the letter’s contents to the Star after they were first reported by the Globe and Mail.
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The goal, Milette said, is for each minister to find savings from their government department of 7.5 per cent for the 2026-27 fiscal year. The target will increase to 10 per cent in 2027-28 and 15 per cent in 2028-29, she said.
Milette confirmed the reductions the government is now seeking are larger than the targets the Liberals proposed in the recent election campaign, but would not say exactly how much money is now being targeted.
According to the government, the new process would base reductions on the estimates for total government spending for the current fiscal year, but would exclude more than $300 billion earmarked for transfers to other governments and individuals, public debt charges and statutory spending. The main spending estimates tabled in Parliament this spring included another $143.1 billion in “operational and capital” funding, but Milette would only confirm Monday that the pool of money subject to the review is larger than that.
That means the government is seeking annual internal savings of more than $21.5 billion within the next three years — a higher target than the $13 billion the Liberals earmarked in their platform for the April 28 election.
Milette stressed, however, that the government still has no intention of cutting services or transfer payments to individuals and other levels of government. Milette noted that Carney’s campaign promise was to balance operational spending over three years, while using public funds to spur economic growth.
“It’s really a long-term plan,” Milette said. “It’s a transformation of how we want to do things as a government.”
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Milette declined to share a copy of Monday’s letter from Champagne and Ali, but a government source who spoke on condition they weren’t named provided excerpts to the Star.
The letter said the government’s “new investments must be anchored by a new fiscal plan” that “spends less on operations and invests more” in initiatives that grow the economy, according to the excerpts the source provided.
Cabinet ministers were asked to look at the programs in their respective portfolios and determine whether they are “core” to the federal government’s mandate, and whether they “duplicate what is offered elsewhere” by Ottawa or other levels of government, the letter said. The source said cabinet ministers are expected to identify potential savings by the end of the summer.
The letter also nodded to “investments” the government has made since the April election. That includes reductions in revenue from the Liberals’ cut to sales tax cut for first-time homebuyers for housing worth less than $1.5 million, and to cut income tax for the lowest bracket from 15 to 14 per cent.
The Liberals also scrapped plans for a digital services tax under pressure from U.S. President Donald Trump, and pledged during the campaign to cancel plans for an increase to capital gains taxes.
The Carney government also announced it would aggressively ramp up the annual defence budget with an extra $9 billion in the current fiscal year, and billions more in annual spending to come after Canada agreed in June to a new target with the North Atlantic Treaty Organization (NATO) that would see all members of the alliance spend the equivalent of five per cent of their economic output on defence and defence-related initiatives by 2035.
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The core defence commitment alone, at 3.5 per cent of Canada’s gross domestic product (GDP), could require at least another $40 billion per year in federal dollars devoted to the military, depending on how the economy over the next decade.
Carney alluded to federal spending changes the accommodate the spending boost at the NATO summit in the Netherlands on June 25. “If we are moving to the higher and higher levels of defence spending because that’s necessary, then we will have to make considerations about what less the federal government can do in certain cases, and how … we’re going to pay for it,” he told reporters in The Hague.
The government source said Champagne sent a second letter to cabinet colleagues Monday that asked them to prioritize initiatives that cost nothing or can be funded by reallocating existing funds ahead of the federal budget planned for this fall. The basic idea, the source said, is to send a “strong message” to cabinet that the government is serious about spending less while “investing more” in areas like tax cuts and defence spending.
Don Davies, the interim leader of the New Democratic Party, said he is concerned the spending reductions will include cuts to social programs. Accusing Carney of leading the most “right wing” Liberal government since cuts to tackle the rising debt in the 1990s, Davies said Carney’s administration is pursuing an “austerity” agenda.
“Canadians are going to be seeing massive cuts,” he said.
For David Macdonald, senior economist with the Canadian Centre for Policy Alternatives, the spending reductions will likely mean cuts to the public service in areas of government other than the Department of National Defence, which is projected to see its budget increase. That could mean cuts to federal program spending that are deeper than those seen since the 1990s, Macdonald said.
“These would be historic,” he said.
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