Government consumption and investment

Government spending in Canada is projected to reach $652.1 billion in 2025, reflecting growth of 2.6% over the previous year. The increase reflects Prime Minister Mark Carney's commitment to a dual approach of fiscal discipline and strategic capital investment, with the upcoming November 4, 2025 federal budget expected to mark a significant shift in Canada's fiscal policy framework. The federal government alone is budgeting $486.9 billion in spending for fiscal year 2025-26, with substantial allocations directed toward productivity-enhancing infrastructure and clean economy initiatives under the new Capital Budgeting Framework.

The past five years have witnessed accelerating government expenditure driven by both pandemic-related interventions and expanded social programs. Following a modest 1.4% increase in 2020 as initial COVID-19 spending ramped up, government spending surged 4.9% in 2021 to $579.5 billion as federal and provincial governments deployed unprecedented support programs for households and businesses. Growth moderated but remained elevated at 2.6% in both 2022 and 2023, as pandemic emergency measures wound down but were partially replaced by permanent program expansions in healthcare, childcare, and housing.

Spending accelerated again in 2024, climbing 4.2% to $635.6 billion as all levels of government increased outlays on healthcare system capacity, housing construction initiatives, and infrastructure projects. Provincial governments led much of this expansion, with Ontario's $214.5 billion budget representing the province's largest spending package in history, and major infrastructure commitments announced across British Columbia, Alberta, and Quebec. Healthcare spending dominated provincial priorities, with Ontario allocating $2 billion for home and community care expansion and Alberta committing $6.6 billion for physician compensation programs.

The composition of government spending has shifted markedly toward capital investment as opposed to operational expenditure, reflecting both infrastructure deficits from years of underinvestment and deliberate policy pivots toward productivity-enhancing assets. Federal priorities now emphasize clean economy tax credits, advanced manufacturing facilities, housing construction enablement, and digital infrastructure to support artificial intelligence adoption. Debt servicing costs have also risen substantially as higher interest rates have increased the burden of financing federal and provincial deficits accumulated during the pandemic period.