Chapter 5: 
Creating a more efficient and effective government

Canada's new government made a clear commitment to Canadians to bring fiscal discipline to the federal budget. We will spend less on government operations, so we can invest more in the workers, business, and nation-building infrastructure that will build Canada Strong. To achieve this goal, Government itself must become much more productive by rightsizing, cutting red tape and wasteful spending, and adopting AI at scale. Canada's new government will balance Canada's operating budget within three years by making responsible, pragmatic choices—shifting the composition of spending toward capital investments that will grow the economy and prosperity for Canadians. We will make smart, generational investments to build the country we want for ourselves.

By spending less to invest more we can empower Canadians with new opportunities, better careers, and a lower cost of living. We can protect our sovereignty, our borders, our communities, and our way of life. We can build a stronger economy and build prosperous communities across the country.

5.1 Spending Less to Invest More

To spend less, we are modernizing government operations to deliver better results for Canadians and reduce costs. Through an ambitious savings plan, we are slowing the growth in direct program spending from 8 per cent to under 1 per cent. Budget 2025 introduces new measures to make federal programs and services more effective and focused.

This includes results from the Comprehensive Expenditure Review—a government-wide exercise to reduce duplication and inefficiencies and realign activities towards the core federal mandate. Greater efficiency will allow resources to be directed towards increasing public service productivity and improving how services are delivered to Canadians, particularly through the integration of technology and artificial intelligence (AI).

Comprehensive Expenditure Review

Budget 2025 delivers on the Comprehensive Expenditure Review—reducing inefficiency and focusing on core priorities.

It will rein in government spending—saving Canada $13 billion annually by 2028-29, for a total with other savings and revenues of $60 billion over five years.

Over the last decade, from 2015 to 2024, the federal public service grew by more than 40 per cent—double the rate of economic growth. After direct program expenses began to fall from their COVID-19 peak in 2020-21, the federal public service continued to expand. These increases are unsustainable. This has left federal finances strained, and put the vital services and programs that Canadians rely on at risk.

Savings will be achieved by restructuring operations and consolidating internal services and rightsizing programs to realize efficiencies. It will also involve workforce adjustments and attrition to return the size of the public service to a more sustainable level. We will also take action to close tax loopholes and make sure everyone is paying their fair share.

To meet the moment, we must reinvent government to be fit for the 21st century. This means recalibrating activities and fiscal room towards our core mandates—spending less on the day-to-day running of government.

From a peak of almost 368,000 in 2023-24, the public service population is expected to reach roughly 330,000 by the end of 2028-29—a decline of about 40,000 positions or 10 per cent. This reflects normal attrition through retirements, voluntary departures, and previous savings exercises, as well as further action the government is taking to slow spending and return the public service to a sustainable size. Through the Comprehensive Expenditure Review, and the introduction of new and better tools such as AI, the tech-enabled public service of the future will still deliver the services that Canadians depend on.

The Comprehensive Expenditure Review will return government spending to sustainable levels—enabling the government to direct federal spending to enhance productivity and towards capital formation. Each Minister has been tasked with reviewing spending within their portfolio to assess which programs:

1. are meeting their objectives
2. are core to the federal mandate, and
3. complement—rather than duplicate—services delivered by other federal departments or levels of government.

This review is not an across-the-board reduction exercise. It is a measured and strategic approach to improve public service productivity. To achieve this objective, federal departments and agencies undertook a thorough review of their organizations, identifying programs and activities that were underperforming, duplicative or that had strayed away from the core federal mandate. Departments were directed to develop proposals using Gender-Based Analysis Plus to understand how Canadians, including vulnerable groups, would be affected. Statutory transfers payments to provinces, territories and individuals were outside the scope of the review. The Department of Finance and Treasury Board of Canada Secretariat worked with departments to ensure their proposals were sustainable and did not create program integrity pressures or impact the health, safety and the national security of Canadians. Furthermore, the government ensured the proposals did not materially impact core science, research and Indigenous programming.

Evaluation of the proposals was done thoroughly, with strong governance. The Cabinet Committee on Government Transformation / Government Efficiency reviewed all proposals to ensure appropriate oversight and to apply a consistent, whole-of-government approach. Following Cabinet's review, the Minister of Finance and Prime Minister made final decisions for inclusion in Budget 2025.

With this review, the government is making responsible choices to modernise government, right-size programs, improve efficiencies, and deliver better results and services for Canadians. By spending less, we can make the generational investments that grow our economy and protect the essential programs that keep your costs down.

The Comprehensive Expenditure Review will achieve savings of $9 billion in 2026-27, $10 billion in 2027-28 and $13 billion in 2028-29. Combined with other savings and revenues in Budget 2025, this will total $60 billion over five years, starting in 2025-26. Detailed allocations of savings by portfolio are available in Annex 3.

Planned savings fall under three themes generally: Modernising Government Operations, Streamlining Program Delivery, and Recalibrating Government Programs.

1. Modernising Government Operations: The federal government needs to change how it operates and how things are being done to address the challenges we are facing as a country. This theme includes increasing the efficiency of back-office and administrative functions, leveraging new technology, and limiting spending on discretionary travel and training, and the use of external consultants ($25.2 billion over four years).
2. Streamlining Program Delivery: Identifying the right federal program to help you, your family or your business can be complicated and confusing. To make programs more accessible for Canadians and improve administrative efficiency, several federal organizations will streamline their program delivery to improve services and reduce duplication ($1.5 billion over four years).
3. Recalibrating Government Programs: To better align federal funding with the needs of Canadians and priorities of today and tomorrow, the government has identified opportunities to refocus several programs. This will help prioritize programs that will deliver the greatest impact ($17.5 billion over four years).

Consistent with a focus on improving productivity and efficiency, more than half of the total savings originate from actions to modernize government operations. This will contribute to reducing projected growth in the government's day-to-day operating spending, while maintaining programs and major transfers to Canadians. The government recalibrated programs through this exercise in order to deliver on the new generational investments in infrastructure, housing, and sectoral support provided in Budget 2025.

While this review has involved tough choices, these adjustments make sense to ensure responsible use of public funds while delivering the support Canadians expect from their government. Through the review, the focus has been on linking both spending and savings to key outcomes, a number of which are presented below.

By 2028-29, reductions from the Comprehensive Expenditure Review will represent 4.9 per cent of projected direct program expenses. These reductions are consistent with exercises taken in previous years to ensure that the federal government's finances are sustainable. Chart 5.2 illustrates the reductions from previous review exercises at maturity as a share of projected direct program expenses.

Savings across departments and programs vary, reflecting the need to protect the important mandates that some organizations have in delivering frontline services, social programs, and priorities such as defence and security.

• Recognizing recent investments and the importance of securing Canada's sovereignty, security and border, the Department of National Defence, the Royal Canadian Mounted Police and the Canada Border Services Agency's annual savings target was set at two per cent of the review base. Given their essential role in keeping our country safe, this approach is also being taken with the Canadian Security Intelligence Service and the Communications Security Establishment.
• A resilient Canadian economy needs to advance research and attract and retain the top research talent to supercharge our growth. Recognizing this priority, the targets of the Natural Sciences and Engineering Research Council, the Social Sciences and Humanities Research Council and the Canadian Institutes of Health Research are also being set at two per cent, to protect the councils' important contributions in improving our global competitiveness and contributing to the economy of the future.
• The Department for Women and Gender Equality (WAGE) empowers women and 2SLGBTQI+ people through programs to eliminate discrimination and advance the rights of women and 2SLGBTQI+ communities. To support WAGE in continuing this critical work, its annual savings target is being set at two per cent of its review base.
• The government remains committed to reconciliation. Crown-Indigenous Relations and Northern Affairs Canada and Indigenous Services Canada deliver important programs that are legally or constitutionally required, including child and family services, primary health care, and essential community infrastructure. The government will review how these organizations can deliver these programs more efficiently, with a two per cent savings target.

Actions taken through the Comprehensive Expenditure Review to reduce day-to-day operating spending complement other fiscal actions in Budget 2025, including proposing a reverse charge mechanism to help combat carousel fraud schemes and proposed legislative amendments to reform and modernize transfer pricing rules, to protect the integrity of Canada's tax system and ensure the government collects revenues that it should.

Workforce Renewal

The savings identified through CER will contribute to returning the size of the public service to a more sustainable level, with an estimated reduction of 16,000 full-time equivalents, or roughly 4.5 per cent of the workforce as of March 2025. Of these reductions, some 650 will be executive positions, representing about 7 per cent of the executive population. These reductions will continue the trend towards a more sustainable public service size of roughly 330,000 by 2028-29, a decline of about 40,000 or 10 per cent from the 2023-24 peak—where attrition has, and will continue to be, a driver. The government understands that transitions can be difficult and is committed to minimising hardship for federal employees, while also protecting diversity in the public service workforce and ensuring a strong, younger generation of public servants.

This is a transformational time for the public service to revisit how we work, how we can improve services to Canadians and how we can build for the future. A leaner public service is a more empowered and productive public service.

• To manage these reductions to the greatest extent possible through attrition and voluntary departures, Budget 2025 proposes to amend the Public Service Superannuation Act and the Income Tax Regulations to offer a voluntary Early Retirement Incentive (ERI) program through the Public Service Pension Plan. Public servants at age 50 or above for Group 1 and age 55 or above for Group 2 who have at least ten years of employment, with at least two years of pensionable service in the Plan may apply to participate under parameters set by Treasury Board. These parameters will be designed to maintain essential services and business continuity. Eligible employees will be able to retire with an immediate pension based on years of service with no penalty for early retirement. Implementation would proceed by January 15, 2026, or when legislation receives Royal Assent, and the government intends to conclude the ERI process within one year. This program, which will be sourced from the Public Service Pension Fund, is estimated to have a net fiscal impact of $1.5 billion over five years, starting in 2025-26, while providing ongoing savings of $82.0 million annually.
• To support the increased workflow at the Government of Canada Pension Centre from administering this time-limited program, Budget 2025 proposes to provide Public Services and Procurement Canada with $15.0 million over two years, starting in 2025-26.
• As the size of the public service adjusts, so too, must the leadership. The government will reduce the executive cadre in the public service by 1,000 positions overall over the next two years, inclusive of positions reduced through CER and early retirements.
• The government will also reduce expenses on management and other consulting services by 20 per cent in three years' time – in order to reduce wasteful spending and empower the public service to take on more responsibility and accountability.

These actions will ensure that the public service continues to provide effective services while being representative of the Canadians that it serves and fostering the next generation of public servants.

In the coming weeks, participating organizations will be communicating these measures to their employees and collective bargaining agents. The federal government will continue to identify more efficiencies and potential savings, which will be communicated in the 2026-27 Main Estimates and Departmental Plans.

Optimizing Productivity in Government

To ensure high quality service delivery for Canadians, the government must continually strive to optimize its productivity and transform how it operates. The government will make sure public servants are equipped with the tools, technology and training to do their jobs. We will bring focus to our priorities. We will clarify accountabilities. We will simplify processes and reduce duplication. This is about doing things faster, simpler and better.

At the same time, as emerging technologies like AI continue to advance, the government intends to be at the forefront in their adoption and build and rely on the skills we have in the public service. Budget 2025 announces that going forward, the government will:

• Improve expenditure management by adopting a regular, predictable review schedule to ensure continuous optimization of resources. Future reviews will focus on specific horizontal themes, such as consolidating the administration of programs, fostering AI implementation and scale-up in the public service, and reviewing business subsidies and skills programming.
• To demonstrate the government's commitment to restraining the growth in day-to-day operating spending, it is targeting additional savings of $7.75 billion over three years, starting in 2027-28, and $3.25 billion ongoing. Results will be reported on in Budget 2026.

Adopting AI to Enhance Productivity and Improve Services

• Budget 2025 announces that the government intends to stand up an Office of Digital Transformation which will proactively identify, implement, and scale technology solutions across the federal government—a generational opportunity for domestic innovators. The Office will identify and eliminate redundant and counterproductive procurement rules as well as leverage expertise from internal sources and the private sector to hasten AI adoption.
• Budget 2025 also announces that Shared Services Canada, in partnership with the Department of National Defence and the Communications Security Establishment, will develop a made-in-Canada AI tool that can be deployed across the federal government. Shared Services Canada will partner with leading Canadian AI companies to develop this internal tool. By supporting innovative research to strengthen public services, this work will protect our digital sovereignty, keep government data and information safe in Canada, and create opportunities for the Canadian technology sector.

Equitable Public Sector Retirement Benefits

In 2019, enhancements to the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP) led federal employees and the government to contribute more than needed to maintain existing pension benefits.

• Budget 2025 announces the government's intention to initiate consultations with key stakeholders to account for CPP and QPP enhancements and ensure that federal employees continue to receive the same pension benefits, without overcontributing. This will save federal employees up to $1,100 in annual pension contributions, while maintaining their pension benefit levels. At the same time, this will achieve fiscal savings of $1.1 billion over four years, starting in 2026-27, and $384 million ongoing from lower pension expenses for the government.

In 2014, the government increased the number of years of service required to be eligible for the Public Service Health Care Plan in retirement from two to six, to ensure that the costs of the Public Service Health Care Plan remained sustainable and affordable in the future. To ensure benefits remain available to public servants in retirement, while being reasonable for taxpayers:

• Budget 2025 announces that the government will consult stakeholders on making similar modifications to the Pensioners' Dental Services Plan so that, going forward, the years of service required to be eligible to participate in the Plan in retirement would increase from two to six years. This will not impact current members. With these changes implemented before the end of the 2025-26 fiscal year, net savings of $101.8 million over five years, starting in 2025-26, and $13.1 million per year ongoing are expected.

Collective Bargaining in Good Faith

2025 marks the beginning of a new round of collective bargaining between federal public service bargaining agents and the government. The government believes that the best deals are reached by the parties at the bargaining table. In working to renew collective agreements, the government will negotiate fair and reasonable agreements that balance the interests of both employees and taxpayers. At the same time, the government will respect workers' fundamental rights to organize, collectively bargain, and commence legal labour actions.

• Budget 2025 reaffirms these rights by proposing to introduce amendments to the Federal Public Sector Labour Relations Act to ensure the government can attract and retain the necessary talent for a high-performing public service to meet the needs of Canadians, while respecting Canada's fiscal circumstances relative to its stated budgetary policies and objectives.

Public sector compensation must align with Canadian labour market trends and the government's fiscal position, freeing resources to be invested towards growing Canada's economy.

Improving the Integrity of Student Financial Assistance

The Canada Student Financial Assistance Program plays an important role in facilitating access to post-secondary education—providing opportunities for Canadians to learn new skills and earn new qualifications. Ensuring that it is used as intended is essential to control costs and to provide a fair chance to students who rely on this support.

• Budget 2025 announces the government's intention to propose legislative and regulatory amendments to address integrity issues related to private educational institutions by generally limiting access to the Canada Student Grant for Full-time Students to students attending public educational institutions and not-for-profit private institutions within Canada. Internationally, Canada Student Loans and Grants generally would only be provided to those who attend public institutions. This measure is expected to result in savings of approximately $1.0 billion over four years, starting in 2026-27, and $280.1 million ongoing.

Addressing integrity issues in the Canada Student Financial Assistance Program limits the financial risks to the Crown and ensures that post-secondary students have access to the best educational outcomes.

5.2 Modernising Services

Building a government that works better for Canadians requires a modern, agile, and efficient public service—empowered through technology and greater responsibility. This will create a more effective government, one that is capable of providing high-quality services for Canadians and businesses as the economy grows.

Faster Services for Veterans

Canada owes a debt of gratitude to the women and men who answered the call to serve. Canada's Veterans should never have to wait unnecessarily for the services they have earned—they deserve timely, compassionate support. While recent temporary funding injections have increased processing capacity, which has enabled reductions to wait times and the backlog, Veterans Affairs Canada continues to face pressure from rising caseloads. To that end:

• Budget 2025 proposes to provide $184.9 million over four years, starting in 2026-27, and $40.1 million ongoing for Veterans Affairs Canada to stabilise their processing capacity for disability benefits applications and to modernise operational processes and IT infrastructure for their disability benefits program.

Maintaining the Effectiveness of Fines and Penalties

The government levies administrative monetary penalties and fines for violations of certain legislation or regulations. These levies are meant to ensure everyone follows the rules, whether employment standards, environmental regulations, or air passenger rights. In the Strong Borders Act and the Strengthening Canada's Immigration System and Borders Act, the government proposed stronger administrative monetary penalties to strengthen compliance under Canada's Anti-Money Laundering and Anti-Terrorist Finance Regime. However, some other fines and penalties have not been reassessed in many years. To ensure that these remain effective: 

• Budget 2025 announces the government's intention to launch a review of fines and penalties to ensure the charges are sufficient and that non-compliance is not just treated as the cost of doing business. Results of the review will be available in Budget 2026.

Cutting Regulatory and Operational Red Tape

A range of government legislation imposes red tape and regulatory hurdles, while reducing certainty for businesses and Canadians, and hinders broader government efficiency and effectiveness. A less visible form of red tape is legislated requirements that reduce government efficiency and operational effectiveness. These requirements, such as duplicative reporting or cumbersome approvals processes, consume a significant amount of public servants' time, diverting them from tasks that provide greater value to Canadians.

In the spirit of the 60-day regulatory review, the government further intends to introduce a variety of targeted amendments to legislation in order to increase government efficiency and operational effectiveness. This includes amendments that would streamline low-risk internal processes, modernise outdated requirements, eliminate unnecessary and burdensome reporting requirements, remove unnecessary barriers to agile regulation-making, align legislative and regulatory authorities across government and provide for the delegation of certain matters where appropriate. Results of this review will be available in Budget 2026.

Attracting Private Sector Expertise to the Public Service

There is a need to bring in talent and perspectives from outside the government into the public service at speed and scale. To this end, the government is announcing that the Interchange Canada program will be rebranded as the Build Canada Exchange, with an ambitious, immediate-term goal of integrating 50 external leaders in technology, finance, science, and other sectors into the public service.

5.3 A More Efficient Tax System

A robust and efficient tax system is what allows the government to support Canadians, protect the essential services they rely on, and build major infrastructure and millions of homes. Budget 2025 proposes new measures to protect the integrity and improve the efficiency of Canada's tax system.

Protecting the Integrity of the Tax System

Budget 2025 proposes new measures to protect the integrity of Canada's tax system, promote a level playing field for taxpayers, and address abusive tax practices. These tax integrity measures are expected to collectively increase federal revenues by hundreds of millions of dollars.

• To improve tax fairness, Budget 2025 proposes to amend the Income Tax Act to limit the deferral of refundable tax on investment income through the use of tiered corporate structures with staggered year ends, for taxation years that begin on or after Budget Day.
• To ensure that Canadian multinational insurers do not avoid tax on their Canadian insurance business by operating through a foreign subsidiary, Budget 2025 proposes to amend the Income Tax Act to clarify that income derived from assets held by a foreign affiliate of a Canadian insurance company that support Canadian insurance risks is taxable in Canada.
• To protect the integrity of Canada's tax base, Budget 2025 announces the government's intention to propose legislative amendments to reform and modernise the transfer pricing rules, which are used to determine profit among the various entities of a multinational enterprise group.
• To protect Canada's revenue base, Budget 2025 proposes a new reverse charge mechanism to help combat carousel fraud schemes under the Goods and Services Tax/Harmonized Sales Tax, beginning with the telecommunications sector.

Improving the Efficiency of the Tax System

Budget 2025 proposes to eliminate or modify tax measures that have proven to be inefficient, costly to administer, and challenging for Canadian industries at a time of ongoing global economic uncertainty.

• To provide relief to the aviation and boating industries and increase the overall efficiency of the luxury tax framework, Budget 2025 announces the government's intention to end the luxury tax on aircraft and vessels as of the day after Budget Day.
• To simplify Canada's tax system and reduce compliance costs for taxpayers and administrative costs for government, and given other efforts such as the federal foreign buyer ban and municipal and provincial vacant home taxes, Budget 2025 announces the government's intention to eliminate the Underused Housing Tax as of the 2025 calendar year.

5.4 Advancing Indigenous Tax Jurisdiction Frameworks

In collaboration with proponent Indigenous groups and organisations, the federal government aims to conclude fuel, alcohol, cannabis, tobacco, and vaping value-added sales tax arrangements with interested Indigenous governments. The government will explore other flexible, opt-in approaches for tax jurisdiction arrangements that continue to advance fiscal relationships and create more opportunities for Indigenous governments to grow their revenues and achieve the goals of their communities.