Finance Minister François-Philippe Champagne sent letters to all cabinet ministers Monday informing them of plans for a 'Comprehensive Expenditure Review.'PATRICK DOYLE/The Canadian Press
Federal cabinet ministers are being asked to find “ambitious” internal savings this summer ahead of the 2025 budget as Prime Minister Mark Carney’s government decides how it will pay for the billions of dollars in new spending that it recently announced.
Specifically, ministers must find ways to reduce program spending by 7.5 per cent in the fiscal year that begins April 1, 2026, followed by 10 per cent in savings the next year and 15 per cent in the 2028-29 fiscal year.
Program spending refers to the costs related to services provided directly by Ottawa. It excludes large categories such as federal transfers to the provinces and territories for health and social services, debt payments, and direct transfers to individuals such as seniors benefits.
Finance Minister François-Philippe Champagne sent two letters to all cabinet ministers Monday informing them of plans for a “Comprehensive Expenditure Review” as well as a new pre-budget process related to minister requests for new funding.
“You will be expected to bring forward ambitious savings proposals to spend less on the day-to-day running of government, and invest more in building a strong, united Canadian economy,” Mr. Champagne wrote in one of the letters.
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The letters are being sent in the context of preparing for the 2025 federal budget, which the government has promised to table in the fall shortly after the House of Commons resumes sitting in September.
A senior government official outlined the plan to The Globe and Mail and provided excerpts of the letters. A second senior government official confirmed aspects of the letters. The Globe is not identifying the senior officials so that they could comment on a matter that has not been publicly announced.
At last month’s NATO leaders’ summit, Mr. Carney pledged that Canada will spend as much as $150-billion annually on defence within a decade, equivalent to 5 per cent of the country’s gross domestic product.
That is a much higher level of defence spending than outlined in the Liberal Party’s election campaign platform, which still laid out larger annual deficits than had been forecast in the Liberal government’s December fiscal update.
The Liberal platform projected a deficit of 1.96 per cent of GDP ($62.3-billion) this fiscal year, followed by 1.83 per cent of GDP ($59.9-billion) the next year.
Prime Minister Mark Carney at the NATO Summit in The Hague last month.Sean Kilpatrick/The Canadian Press
The officials did not provide more detail as to what categories will be the focus of the spending review. The Throne Speech said day-to-day costs have been growing by 9 per cent every year and the government would introduce measures to bring that growth below 2 per cent.
For context, that line was in reference to direct program spending, which was $236-billion in 2023-24. Total federal spending that year was $521-billion.
Parliamentary Budget Officer Yves Giroux and other observers have projected that federal deficits are now likely to exceed platform forecasts, primarily because of the government’s large defence spending promises.
In addition to Mr. Champagne’s letter on the expenditure review, the Finance Minister sent a second letter updating the annual process in which ministers send in their budget priorities.
According to one of the senior government officials, ministers who seek new funding must clearly show how it advances one of the objectives in the common mandate letter Mr. Carney sent to ministers earlier this year.
They would also have to demonstrate that they’ve made efforts to find funding through reallocating existing resources. This would be in addition to the expenditure review effort.
If those conditions have been met, funding for new spending would be considered in the budget process.
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Mr. Champagne’s letter on expenditure review describes the process as ensuring that new investments are “anchored by a new fiscal plan” that spends less on government operations, echoing a theme of the Liberal Party’s platform.
“Through this ambitious review each minister should examine the programs and activities in their portfolio to determine which are: meeting their objectives, are core to the federal mandate, and complement versus duplicate what is offered elsewhere by the federal government or by other levels of government,” it states.
Monday marked the start of the first week on the job for Mr. Carney’s new senior leadership team. Former Hydro‑Québec CEO Michael Sabia is now Clerk of the Privy Council, a position that involves leading the public service and providing policy advice to the Prime Minister and cabinet.
Mr. Sabia has recent federal leadership experience as deputy minister of finance, where he led the federal budget process until he left government in 2023.
This week is also the formal start for Marc-André Blanchard as Mr. Carney’s new chief of staff. Mr. Blanchard was Canada’s ambassador to the United Nations from 2016 until 2020 before spending five years in executive positions with Quebec’s pension fund, the Caisse de dépôt et placement du Québec.
David Macdonald, chief economist for the Canadian Centre for Policy Alternatives, said the targets in the letter are in line with his own estimates that parts of government would face deep cuts. His estimates were released in a report last week based on the government’s public comments to date.
In an interview, he said that the spending review would likely exempt some large categories, such as defence, meaning deeper cuts to other areas.
“The point here is that these are massive cuts, and they would definitely be on par with some of the largest cuts we’ve seen in a generation,” he said. They could be bigger than previous cost-cutting exercises by prime minister Stephen Harper and similar to cuts under prime minister Jean Chrétien, he said.
Mr. Macdonald predicted that Canadians would notice such spending cuts in the form of slower service from federal departments.
Public Service Alliance of Canada president Sharon DeSousa said in an e-mail that her union expects to meet with the Prime Minister’s Office as soon as possible for a full briefing.
“PSAC supports Prime Minister Carney’s vision of building a strong, united Canadian economy – but cutting public services in the name of ‘efficiency’ isn’t the way forward and will only weaken the programs people depend on,” she said in a statement.
The C.D. Howe Institute released its own report on the topic last week, authored by former Privy Council Clerk Michael Wernick.
“The new NATO numbers are daunting, and there are no easy options when it comes to finding the money. The choices are borrow, tax, or cut other areas to make room. We will end up doing a bit of all three – the question is in what mix and how fast,” he wrote.
Mr. Wernick said the “cuttable” part of federal spending is not large enough to cover the increased spending on defence. He called on Parliament to consider a two-point increase to the federal sales tax to help pay for the larger defence budget.
“As we grapple with the unforgiving arithmetic of finding $150-billion a year, we don’t need another sterile and performative debate where people call for more defence spending but won’t declare how to pay for it – or worse, practice fiscal NIMBYism (cut, but cut somewhere else),” he said.