On November 4, 2025, The Honourable François-Philippe Champagne, Minister of Finance, presented the 2025 Budget, entitled “Canada Strong” (“Budget 2025”). Budget 2025 focuses heavily on domestic investments to address Canada’s persistent productivity challenges and the impact of shifts in U.S. trade policy. The net fiscal impact of the new measures introduced in Budget 2025 totals $90 billion over the next five years. If the policy actions taken by the government since the 2024 Fall Economic Statement (“FES 2024”) are also included, such as the cancellation of the proposed capital gains tax increase and the repeal of the Digital Services Tax, the net fiscal impact rises to $125 billion over the same period.
This Bulletin highlights items that may be of interest to plan administrators, employers, and members without comments from PBI.

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2025 Federal Budget Highlights

Retirement and Benefits

Given its focus on domestic investments and productivity, Budget 2025 proposes only a handful of measures related to retirement and benefits, which would need to be implemented through legislation.

Alignment of Federal Public Sector Plans with CPP/QPP – Following enhancements to the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) in 2019, federal public sector pension plans did not adjust the benefit formula to integrate these benefit enhancements and maintain the 2% net benefit accrual rate. Budget 2025 proposes that federal public sector pension legislation be amended to restore the overall integrated 2% pension benefit rate for the Public Service Pension Plan and the pension plans for the Canadian Forces and the Royal Canadian Mounted Police. This would lead to lower contributions for both federal employees and the government. Employees’ contributions would be reduced by up to $1,100 per year due to the lower benefit accruals, while the government would save approximately $1.1 billion over five years, and $384 million annually thereafter. The government plans to initiate consultations with key stakeholders on this issue.

Early Retirement Incentive Program through the Public Service Pension Plan – A key feature of Budget 2025 is returning the size of the public service workforce to a more sustainable level with an estimated reduction of 40,000 employees (or 10%) from its 2023-2024 peak. To manage these reductions through attrition and voluntary departures, the Public Service Superannuation Act and the Income Tax Regulations would be amended to offer a voluntary Early Retirement Incentive (ERI) program through the Public Service Pension Plan. Public servants at age 50 or above (Group 1) and public servants at age 55 or above who have ten years of employment (Group 2) would be eligible to retire with an immediate pension with no penalty. The ERI program would be open for one year from January 15, 2026 (or when the legislation receives Royal Assent). The net fiscal impact of this measure is estimated at $1.5 billion over five years, with ongoing annual savings of $82 million thereafter.

Extending Early Retirement Program to CBSA Officers and Other Frontline Employee Groups in the Public Service Pension Plan – An early retirement program is presently available to employees of Correctional Service Canada (CSC) which allows for retirement with an unreduced pension after completing 25 years of actual operational service, or at age 50 with 25 years of actual and deemed operational service combined (including at least 10 years of actual operational service). The Public Service Superannuation Act would be amended to extend this retirement program to CBSA officers and other frontline workers (firefighters, parliamentary protection officers, etc.) in the Public Service Pension Plan. The net fiscal impact of this measure is estimated at $217 million over five years, and $11 million annually thereafter.

Indexing RCMP Disability Pensions to the Consumer Price Index – Legislative and regulatory amendments will be proposed to modify the escalation formula of the Disability Pension so that the benefit is indexed solely on the Consumer Price Index for serving and retired RCMP members, effective January 2027. This will ensure that benefits are indexed in a manner consistent with other federal benefits such as Old Age Security and the Canada Pension Plan. This measure is expected to generate savings of $5.8 billion over four years, starting in 2026-2027.

Alignment of Pensioners’ Dental Services Plan with Public Service Health Care Plan – The government is also considering increasing the minimum years of service required to participate in the Pensioners’ Dental Services Plan from two to six years. This would align the eligibility criteria with the Public Service Health Care Plan, which increased its minimum service requirement from two to six years in 2014. This measure is expected to generate savings of $102 million over five years, and $13 million annually thereafter. The government also plans to initiate consultations with key stakeholders on this issue.

Extending Employment Insurance Parental Benefits during Bereavement – The Employment Insurance Act would be amended to allow claimants receiving Employment Insurance parental benefits to access an additional eight weeks of parental benefits in the event of the death of the child. The net fiscal impact of this measure is estimated at $17 million over five years.

In addition to these measures, the government confirmed the launch of the Venture and Growth Capital Catalyst Initiative, a fund-of-funds designed to incentivize pension funds and other institutional investors to invest in Canadian companies that face early growth-stage funding gaps. The Business Development Bank of Canada will oversee this investment of $1 billion over three years starting in 2026-2027.

Canada’s New Industrial Strategy

Budget 2025 acknowledges that Canada’s productivity performance has been persistently weak in recent years (especially compared to other G7 economies) and attributes this to low levels of business investment in Canada over the past decade.

Budget 2025 identifies four key “high-return actions” aimed at improving productivity growth by catalyzing private sector investment:

1. Infrastructure projects (connecting markets and regions)
2. Public investment in R&D (accelerating technology adoption)

• Regulatory reforms (cutting red tape)

1. Productivity super-deduction (providing enhanced tax incentives)

Budget 2025 enables $1 trillion in total investment over the next five years, $280 billion (cash basis) of which is earmarked to support of third parties. The government’s overarching target is to catalyse $500 billion in new private-sector investments over that same period.

The capital investments of $280 billion over the next five years are broken down as follows:

1. Infrastructure – $115 billion
2. Productivity and Competitiveness – $110 billion

• Defence & Security – $30 billion

1. Housing – $25 billion

The first five projects being referred to the newly established Major Projects Office (launched in August 2025) for consideration collectively represent approximately $60 billion in total capital investment, with additional nation-building projects expected to be announced later this month. These projects are:

1. LNG Canada Phase 2 (Kitimat, British Columbia)
2. Darlington New Nuclear Project (Bowmanville, Ontario)

• Contrecœur Terminal Container Project (Contrecœur, Quebec)

1. McIlvenna Bay Foran Copper Mine Project (East-Central Saskatchewan)
2. Red Chris Mine Expansion (Northwest British Columbia)

Reductions to Public Service

To offset some of the cost of implementing this new industrial strategy, the federal government proposes to change its approach to spending, especially on direct program expenses, which have grown by 8% annually. This new approach is guided by two fiscal anchors:

1. Balance operating spending with revenues by 2028-2029
2. Maintain a declining deficit-to-GDP ratio (as opposed to “debt-to-GDP” ratio)

A new Capital Budgeting Framework will be put in place, separating spending that contributes to capital formation from day-to-day operating spending. The budgetary cycle will shift to a Fall Budget, improving planning for provinces and territories and aligning with the construction season.

The government is targeting savings of $60 billion over five years, which will require a significant reduction in inefficiencies, workforce adjustments, and attrition to return the size of the public service workforce to a more sustainable level. Each of the 29 federal agencies has been required to meet savings targets of up to 15% over three years.

Canadian Economic and Fiscal Outlook

GDP growth

The recent shift in U.S. trade policy toward greater protectionism and its impact on Canada’s exports have significantly affected the country’s economic growth. Real GDP (Gross Domestic Product) contracted in the second quarter of 2025, offsetting the 2.0% annualized growth in the first quarter, resulting in only a 0.2% growth over the first half of 2025. Exports are expected to remain sluggish as U.S. tariffs divert demand away from Canadian steel, aluminum, copper, lumber, and autos. However, consumption is projected to increase due to improved balance sheets for households and lower interest rates. Private sector economists surveyed expect growth of 1.1% for 2025 and 1.2% for 2026, down sharply from the FES 2024 outlook of 1.9% and 2.1%, respectively.

Inflation and Interest Rates

Economists surveyed by the federal government expect CPI inflation to average 2.1% in 2025, return to 2.0% in 2026, and remain at that level over the forecast horizon. Direct and indirect cost pressures from tariffs and supply chain disruptions are expected to be largely offset by the disinflationary impact of removing the fuel charge following the cancellation of the Consumer Carbon Price in April 2025, as well as by excess supply.

Economists also expect the policy interest rate to remain at 2.25% through 2026, before gradually rising to 2.6% by the end of the forecast period in 2029. Short-term interest rates (3-month Treasury bill rates) are expected to be on average 0.30% lower than the forecast in the FES 2024, settling at 2.6% in 2029.

Unemployment and Wages

The unemployment rate currently stands at 7.1% and is expected to peak at 7.2% in the fourth quarter of 2025, averaging 7.0% in 2025. This elevated level is expected to continue due to the impact of trade tensions on labour demand, before gradually declining to 6.0% by 2029. However, wage growth remains high at 3.0% in August 2025 (year-over-year) and has outpaced CPI inflation for nearly three years.

Budgetary Balance and Federal Debt

For 2025-2026, the budgetary balance is expected to show a $78.3 billion deficit (or 2.5% of GDP), which is a substantial increase compared to the FES 2024 forecast for the same period ($42.2 billion deficit, or 1.3% of GDP). This increase is largely explained by policy actions and measures announced since then, which increased the deficit by $29.1 billion, $20.1 billion of which was announced in the 2025 Budget alone.

The federal government is projecting this deficit to gradually decrease over the next five years, ending at $56.6 billion (1.5% of GDP) for 2029-2030. It is important to note that additional fiscal revenues potentially generated by the targeted $500 billion in private-sector investment over five years were not included in Budget 2025, for prudence.

Due to uncertainties around trade and tariffs, the government has developed both a downside and upside scenario:

• Under the downside scenario, “trade policy uncertainty remains elevated, leaving consumers and businesses cautious in spending and investment” – the deficit in 2029-2030 is projected at $65.1 billion.
• Under the upside scenario, “trade policy uncertainty eases more rapidly as the U.S. concludes trade agreements with major partners and global tensions ease; domestic measures to streamline internal trade, bolster competition, and diversify and deepen global partnerships contribute to a more predictable business environment” – the deficit in 2029-2030 is projected at $51.5 billion

Total federal debt is projected to be $1,347 billion at the end of 2025-2026 (or 42.4% of GDP). At the end of 2029-2030, the debt is expected to slightly increase to 43.1% of GDP.