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Spending restraint: Roadmap to a balanced budget

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From the Fraser Institute

A Case for Spending Restraint: How the Federal Government Can Balance the Budget

By Grady Munro and Jake Fuss

Since 2015, there has been a deterioration in the federal government’s fiscal situation. Annual
nominal program spending has increased an estimated $193.6 billion since 2014/15; adjusted for
inflation and population growth this represents an extra $2,330 per person. Prior to the COVID
pandemic, spending increased faster than population, inflation, and other relevant economic
indicators. These spending increases have resulted in a string of large budgetary deficits that have
contributed to an estimated $941.9 billion increase in gross federal debt from 2014/15 to 2023/24.
This accumulation of debt, along with recent hikes in interest rates, has raised the cost of interest
on the federal debt to one of the largest budget expense items.

Moving forward, the federal government plans to slow nominal spending growth, which will keep inflation-adjusted, per-person spending relatively constant to 2026/27. Despite this, the federal government will continue running budget deficits and accumulating debt. It is also uncertain whether the federal government’s current estimates are truly reliable as the estimates do not incorporate expected spending on pharmacare or the level of defence spending to meet Canada’s NATO commitment. Moreover, the federal government’s track record of exceeding previous spending commitments calls into question the reliability of the current spending targets. Therefore, it is clear the federal government is not implementing the level of spending restraint necessary to reverse course towards a stable fiscal situation.

An approach to federal finances that continues to run budget deficits and accumulate debt is economically harmful to both current and future generations of Canadians. Research shows that significant increases in debt-financed spending harm economic growth by reducing capital accumulation and labour productivity.

Furthermore, accumulating debt today increases the tax burden on future generations of Canadians, as they will be responsible for paying off this debt. Despite these effects, the federal government plans to continue running deficits and accumulating debt for the foreseeable future.

This need not be the case. The federal government can undertake decisive spending reform starting in 2024— similar to the reform by the Chrétien government in the 1990s—that balances the budget within a year or two. The federal government could balance the budget in 2026/27 by limiting annual growth in nominal program spending to 0.3% for two years. This would result in a 5.9% reduction in real per-person spending. Alternatively, the budget could be balanced in 2025/26 if the federal government reduces spending 4.3% for one year; the next year, 2026/27, would see a budgetary surplus. In this scenario, inflation-adjusted per-person spending would decline by 7.5%. Key trade-offs between the two approaches include the extent of the spending reform and the speed of the return to balanced budgets. Balancing the budget in one year, as opposed to two years, would
result in $30.0 billion less debt accumulated by 2026/27.

Though it is beyond the scope of this study to discuss how such spending reforms should be implemented, there are three areas that might be considered for reform. Business subsidies are a significant expense, yet research suggests they have little if any economic benefit, and may actually harm economic growth when governments pick winners and losers in a free market. Reviewing business subsidies might provide opportunities to find savings. Aligning government-sector wages
with those in the private sector would also provide savings, as government workers in Canada currently enjoy an 8.5% wage premium (on average) relative to comparable private-sector workers. Finally, studies show that government fiscal waste can be significant. From 1988 to 2013, more than 600 government failures cost the federal government between $158.3 billion and $197.1 billion. Moreover, more than 25% of all federal COVID spending was wasteful. Addressing inefficiencies within government might also reveal savings.

  • Canada has seen a deterioration in the federal government’s fiscal situation since 2015. A distinct lack of spending restraint has resulted in a string of large budget deficits, which have contributed to rising government debt and debt interest costs.
  • Despite current fiscal plans promising more of the same, the federal government could implement decisive spending reform starting in 2024/25, similar to reforms implemented in the 1990s, and balance the budget within one or two years.
  • To balance the budget by 2026/27, the federal government would need to limit growth in annual nominal program spending to 0.3 percent for two years. This would translate to a 5.9 percent reduction in inflation-adjusted, per-person spending.
  • Alternatively, the federal government could balance the budget in one year, by 2025/26, by reducing nominal program spending by 4.3 percent. Adjusted for inflation and population, this would be a 7.5 percent decrease. In 2026/27, the federal government could then record a $8.2 billion surplus even while increasing spending from the previous year.
  • While this study does not provide an in-depth analysis of where potential savings should be found, research highlights three potential areas that could be targeted for spending reform: corporate welfare, aligning government-sector wages with those in the private sector, or eliminating government fiscal waste.

A Case for Spending Restraint in Canada: How the Federal Government Can Balance the Budget

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2025 Federal Election

Next federal government should end corporate welfare for forced EV transition

Published on

From the Fraser Institute

By Tegan Hill and Jake Fuss

Corporate welfare simply shifts jobs and investment away from other firms and industries—which are more productive, as they don’t require government funding to be economically viable—to the governments’ preferred industries and firms, circumventing the preferences of consumers and investors. And since politicians spend other people’s money, they have little incentive to be careful investors.

General Motors recently announced the temporary closure of its electric vehicle (EV) manufacturing plant in Ontario, laying off 500 people because its new EV isn’t selling. The plant will shut down for six months despite hundreds of millions in government subsides financed by taxpayers. This is just one more example of corporate welfare—when governments subsidize favoured industries and companies—and it’s time for the provinces and the next federal government to eliminate it.

Between the federal government and Ontario government, GM received about $500 million to help fund its EV transition. But this is just one example of corporate welfare in the auto sector. Stellantis and Volkswagen will receive about $28 billion in government subsidies while Honda is promised $5 billion.

More broadly, from 2007 to 2019, the last pre-COVID year of data, the federal government spent an estimated $84.6 billion (adjusted for inflation) on corporate welfare while provincial and local governments spent another $302.9 billion. And crucially, these numbers exclude other forms of government support such as loan guarantees, direct investments and regulatory privileges, so the actual cost of corporate welfare during this period was much higher.

Of course, politicians claim that corporate welfare benefits workers. Yet according to a significant body of research, corporate welfare fails to generate widespread economic benefit. Think of it this way—if the businesses that received subsidies were viable to begin with, they wouldn’t need government support. So unprofitable companies are kept in business through governments’ support, which can prevent resources, including investment and workers, from moving to profitable companies, hurting overall economic growth.

Put differently, rather than fuelling economic growth, corporate welfare simply shifts jobs and investment away from other firms and industries—which are more productive, as they don’t require government funding to be economically viable—to the governments’ preferred industries and firms, circumventing the preferences of consumers and investors. And since politicians spend other people’s money, they have little incentive to be careful investors.

Governments also must impose higher tax rates on everyone else to pay for corporate welfare. In turn, higher tax rates discourage entrepreneurship and business investment—again, which fuels economic growth. And the higher the tax rates, the more economic activity they discourage.

GM’s EV plant shut down once again proves that when governments try to engineer the economy with corporate welfare, workers will ultimately lose. It’s time for the provinces and the next federal government—whoever it may be—to finally put an end to this costly and ineffective policy approach.

Tegan Hill

Director, Alberta Policy, Fraser Institute

Jake Fuss

Director, Fiscal Studies, Fraser Institute
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Business

Hudson’s Bay Bid Raises Red Flags Over Foreign Influence

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From the Frontier Centre for Public Policy

By Scott McGregor

A billionaire’s retail ambition might also serve Beijing’s global influence strategy. Canada must look beyond the storefront

When B.C. billionaire Weihong Liu publicly declared interest in acquiring Hudson’s Bay stores, it wasn’t just a retail story—it was a signal flare in an era where foreign investment increasingly doubles as geopolitical strategy.

The Hudson’s Bay Company, founded in 1670, remains an enduring symbol of Canadian heritage. While its commercial relevance has waned in recent years, its brand is deeply etched into the national identity. That’s precisely why any potential acquisition, particularly by an investor with strong ties to the People’s Republic of China (PRC), deserves thoughtful, measured scrutiny.

Liu, a prominent figure in Vancouver’s Chinese-Canadian business community, announced her interest in acquiring several Hudson’s Bay stores on Chinese social media platform Xiaohongshu (RedNote), expressing a desire to “make the Bay great again.” Though revitalizing a Canadian retail icon may seem commendable, the timing and context of this bid suggest a broader strategic positioning—one that aligns with the People’s Republic of China’s increasingly nuanced approach to economic diplomacy, especially in countries like Canada that sit at the crossroads of American and Chinese spheres of influence.

This fits a familiar pattern. In recent years, we’ve seen examples of Chinese corporate involvement in Canadian cultural and commercial institutions, such as Huawei’s past sponsorship of Hockey Night in Canada. Even as national security concerns were raised by allies and intelligence agencies, Huawei’s logo remained a visible presence during one of the country’s most cherished broadcasts. These engagements, though often framed as commercially justified, serve another purpose: to normalize Chinese brand and state-linked presence within the fabric of Canadian identity and daily life.

What we may be witnessing is part of a broader PRC strategy to deepen economic and cultural ties with Canada at a time when U.S.-China relations remain strained. As American tariffs on Canadian goods—particularly in aluminum, lumber and dairy—have tested cross-border loyalties, Beijing has positioned itself as an alternative economic partner. Investments into cultural and heritage-linked assets like Hudson’s Bay could be seen as a symbolic extension of this effort to draw Canada further into its orbit of influence, subtly decoupling the country from the gravitational pull of its traditional allies.

From my perspective, as a professional with experience in threat finance, economic subversion and political leveraging, this does not necessarily imply nefarious intent in each case. However, it does demand a conscious awareness of how soft power is exercised through commercial influence, particularly by state-aligned actors. As I continue my research in international business law, I see how investment vehicles, trade deals and brand acquisitions can function as instruments of foreign policy—tools for shaping narratives, building alliances and shifting influence over time.

Canada must neither overreact nor overlook these developments. Open markets and cultural exchange are vital to our prosperity and pluralism. But so too is the responsibility to preserve our sovereignty—not only in the physical sense, but in the cultural and institutional dimensions that shape our national identity.

Strategic investment review processes, cultural asset protections and greater transparency around foreign corporate ownership can help strike this balance. We should be cautious not to allow historically Canadian institutions to become conduits, however unintentionally, for geopolitical leverage.

In a world where power is increasingly exercised through influence rather than force, safeguarding our heritage means understanding who is buying—and why.

Scott McGregor is the managing partner and CEO of Close Hold Intelligence Consulting.

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