The Decibel - What to look out for in the 2025 federal budget

Episode Date: November 4, 2025

Today, Finance Minister François-Philippe Champagne is set to deliver the first budget under Prime Minister Mark Carney. Early announcements have signalled sweeping cuts to the public sector. There��s no guarantee that the budget will pass, given Carney is presiding over a minority government. The NDP has said they wouldn’t rule out abstaining from the budget vote; for his part, Carney has said he’s ready to fight another election campaign if it comes down to that.But beneath all the politics surrounding the budget are actual policies and plans for the government. It’s the job of the Parliamentary Budget Officer, or PBO, to provide non-partisan analysis of these plans to parliamentarians – does the math add up? Are these predictions sound? Today on the show, Yves Giroux, who was the PBO from 2018 until early September this year, is here to walk us through what to watch for when the budget drops later today.Questions? Comments? Ideas? Email us at [e-mail] Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Today, the Carney government is set to table its first budget. Carney was elected on a platform that promised to build up Canada's economy and reduce economic dependence on the U.S. Since then, he's been talking about, quote, generational investments and what he describes as a wartime approach in rebuilding the country. It's worth remembering, Canada hasn't seen a new budget since the spring of 2024, presented by then finance minister, Christia Freeland. The parliamentary budget officer at the time was Eve Giroux. The PBO is a non-partisan fiscal watchdog that helps the public and parliament

understand how the government is spending money. Mr. Giroux was in the job for seven years. And so we wanted to get his expert advice on what to watch for ahead of this year's budget. Eve Girou is now the president of the Association of Quebec Economists and will be a fellow in residence at the C.D. Howe Institute starting in January. I'm Cheryl Sutherland,

and this is the decibel from the Globe and Mail. Hi, Eve, thanks so much for joining us today. My pleasure. So the budget is a big deal on Parliament Hill, but for those of us outside of the Ottawa bubble, can you just lay out what is the purpose of the budget and why does it matter? Well, the purpose of the budget is to lay out the government's fiscal plan,

so how much it will spend, how much it will raise in revenues, but also and more importantly, it's the vehicle through which the government usually lays out all of its other policy plans, such as which programs will get funded, which ones may or will disappear, tax changes, for example, taxes on cigarettes, on gas, as well as its sense of overall priorities. Plus, obviously, the deficit for this year, last year, and the next couple of years as well as the level of debt. It also is the vehicle through which the government indicates its view on the economy. Will we, does the government anticipate, will be in a recession or will we be facing very good time? So that's why the budget is such a sought after

an anticipated moment in the political cycle as well as in the parliamentary cycle. Okay. So you've laid out like why is important and, you know, its impact on, you know, taxpayer dollars. And of course, we're going to talk about the deficit and the level of debt in a bit. But we're talking to you today because you are the parliamentary budget officer for seven years. And before we get into the details of what we should be looking for in this particular budget, what does the parliamentary budget officer do to hold the government to account? So the role of the parliamentary budget officer or PVO in short is to provide non-partisan, unbiased information. and analysis to parliamentarians.

So that's MPs and senators. And the role is important because if you are an MP or even a senator in the same party as that of the government, you have access to a lot of information from the public service, from ministers, and so on. But if you're an opposition MP or even an independent senator, you don't have that same access. Of course, you can ask information to public servants who appear. at committee, you can request information in writing, but usually there's a veil of secrecy surrounding budget making, for example, or legislation that has not yet been tabled, which significantly

limits the information flow from the bureaucracy to independent or opposition parliamentarian. So the parliamentary budget officer, the creation of the office, sought to restore some balance to that information asymmetry. And I did that through providing analysis and information on various topics, not just a budget, but also economic forecasts. So the government always has its own view of the economic forecasts or the state of the economy, but it could tend to embellish things or paint a darker picture if it wants to reduce government spending. So the PBO seeks to restore some balance in the information that

parliamentarians receive. I mean, it sounds kind of like the PBO provides a kind of reality check. In a sense, yes. And the auditor general can do that, but the mandate of the AG, as we call it in the Ottawa bubble, is to look backward. So what did go wrong in the past for a certain program costs to balloon, whereas the PBO looks forward. For example, what will be the state of the economy, six months, two years down the road? How much will this program cost if the government proceeds as planned? Or if a certain proposal from other MPs or senators, if it's adopted by the House and the Senate, how much will it cost Canadians?

Okay, interesting. That's very clarifying that the PBO is looking forward. And as a PBO, what did you look for when you analyzed a budget? First and foremost, we look at the economic forecasts of the government. Are they realistic? Are they based on a sound methodology? Are they overly optimistic or pessimistic? Because if you base your budget on overly optimistic economic scenarios, then your deficit will be lower than it should.

Then we look at obviously the deficit. and the debt to GDP ratio, so the debt and the debt in relation to the size of the economy. And then we also look at the big measures. Have they been appropriately costed? Does that make sense from purely a sniff test when it's the day of the budget? If there's a big program, for example, a dental care program and the cost seems very low, we will look at that in more details. or if there are big announcements that don't even have a cost attached to it,

we will also look at that in much more detail. So these are the first things that we look at. And then we look at the impact these various measures may have on the economy and whether these have been factored into the economic forecasts and the debt and the deficit forecast. And finally, we look at some smaller measures that may not have a cost attached to them, but could nonetheless have a significant economic impact. For example, if there are tax changes that seem pretty inoffensive, but can increase or decrease economic growth, we will also look at that.

So on the day of the lockup, which is when, you know, all the journalists and of course you as well would be in there for the morning to 4 p.m. Are you just analyzing everything, all those pages, those 400 or 600 pages and trying to get to the bottom of what's going on? Yes, but in a budget of four, five, six hundred pages, there's a lot of fluff, I would say. Oh, okay, interesting. Spin and communications and words that are ragging about the government's excellent and stellar record. Or conversely, the dark times ahead of us, if it's a budget that will be an austerity budget.

So there's lots of words that are just there to give a spin to the budget. So when you've written budgets like me, worked on 20 budgets, you start to get a sense as to where to look and which parts to gloss over pretty quickly. So there's a couple of key tables, key charts that make it easier to focus. But in that, the splitherto of words, there can always be little nuggets that are like a little sentence that seems inoffensive, but that can be carrying a lot of weight. Something we hear a lot about when it comes to budget is balancing the budget. Why does it matter if a government budget is balanced or not? It matters for the future. So if you have a balanced budget, it means you're not adding to the debt that year, at least.

Or for the foreseeable future, if you commit to balance budgets year after year. And if you have a stable stock of debt in a growing economy, it means that, your debt becomes less and less important as time goes by. So you'll say, well, that's what every government should aim for. But people think about that and they put that in perspective or compare that with their own situation. But a government is not a person, obviously, but it does not have the same time horizon. Sadly, we will all die one day and we don't want to leave debts behind. So that's why we save during our lifetime so that when we're old, we have some savings to draw on.

Governments don't die, so they can run small deficits forever as long as it's supported by a grown economy. So balanced budgets are not absolutely necessary, but they're very useful if you want to stabilize or reduce the overall debt burden that your population is supported. Something we hear a lot about when it comes to budget is a fiscal anchor. Can you explain what that is? So a fiscal anchor is something, a measure that is your objective as a government. So if you say my fiscal anchor or my objective is to have balanced budgets for at least 10 years, then that becomes your fiscal anchor. It's the point that determines or facilitates your decision-making process. when you're faced with multiple demands to spend more, reduce taxes, and so on.

So that's the objective you have in mind. I want to balance my budget this year. So when ministers so and so or these various groups come to me and say, I want a tax credit for bald middle-aged men, you say, well, that will deviate from my balanced budget fiscal anchor. So it's something that people understand. They understand that you're guided by an objective. You're not saying no just out of mean-spiritedness or something like that.

So you're declining, denying some requests for a reason. But it also establishes your own or the government's credibility with financial markets. Yeah, there's accountability there. Yes, the government does not go where the wind blows. Yes. It is guided by a principle and it is sticking to that principle. We'll be right back. Let's talk about what we've learned so far about what might be in this upcoming budget.

Finance Minister Francois Philippe Champagne hinted that the government will be cutting jobs in the public sector. What do you make of that? It's a commitment that has been made or something that's been mentioned a couple of times. But again, that shifted from we will ensure that the size of the public sector. service is sustainable. That was the commitment. Then it moved to, I will reduce some jobs, the number of jobs, through attrition. So as people leave, retire or just go on to do something else, we won't replace them to, well, there will be some cuts and the minister mentioning or one minister mentioning up to 60,000 job cuts. So again, things change. So I'll be curious to

see what's in the budget. It's something that is attainable because the public service has grown significantly over the last 10 years, much faster than the population, the Canadian population. Can you give us some numbers there? Yeah, I think the size of the public service has increased by something like around a third. It went from 300,000 employees or full-time equivalents to somewhere around 400,000, if you count the public sector at the federal level. So the public sector has grown. Services have not grown at the same place or the quality of

these services has not grown. So it's probably justified that ministers want to reduce the size and return to a level that is closer to what we had prior to the pandemic rather than let the public service keep growing. Wouldn't this have impacts on how the government operates and the services that the public relies on? It could, depending on where the reductions take place and how it's done. So the prime minister has indicated that he expects the public service to rely to a certain extent AI to provide better services to Canadians. So yeah, it could have an impact on services and how services are delivered, but it could be for

the better. I'm not an expert in all exactly how services. are delivered, and I don't know what's in the budget, but the budget could introduce changes that will improve services. It doesn't mean that because you reduce the workforce in some areas, that services will necessarily suffer. It could be back office employees that are most affected, for example, the HR component or the internal finances, the many reports that departments and agencies have to submit to other agencies, I don't know, we'll have to, that's the kind of details. I'm eager to see whether they're in the budget and if they are the extent

to which it's credible to expect savings from such areas. The budget is also going to look different this year. Kearney says he's going to separate out the capital expenses and the operating expenses. What does that mean? Said like that, it means that the government will do exactly what it's been doing for decades because the capital budget is already treated differently than operating expenses. For example, if and when the government buys warships, the year in which a warship is paid for, it doesn't affect the budget by a billion or $2 billion. The impact on the budget is spread out over the expected lifetime of this worship. Same thing for a building. if the government buys a building, builds an army base or so on,

the budgetary impact is spread over the lifetime of that asset. So what the prime minister has said and ministers have hinted that is the fact that the government will include more of these investments or spending in the investment category where it can spread the fiscal impact over a number of years. And that would be a deviation from accounting principles that are governed by accounting bodies, including the AG, the Auditor General, and internationally recognized accounting standards. So it seems like the government could include items such as tax credits and deductions for businesses that are used to foster or facilitate some types of investments. But these investments will be done by businesses. but the government may want to include this expense, so a tax cut for businesses, in its own

definition of investment, therefore reducing the deficit and spreading the cost of these tax cuts over a number of years. You mentioned this change would be a deviation from how we've done accounting in the past. What does that mean? So right now, if a business claims a tax credit or a tax cut because they've invested hundreds of millions in the plan, the tax cut that this company receives is affecting revenues in the year where the tax credit is claimed or the tax deduction. But if the government was to define that as an investment, it could choose to spread the cost

of that deduction to a business over 5, 10, 20 years, who knows. So instead of hitting the deficit, increasing the deficit in one year, the impact. the impact could be smaller each year, but for a longer period, allowing the government to present a much smaller deficit in one year, but the impact would be spread over time. Given the electoral cycle, which is usually every four years, sometimes less in a minority situation, it could be beneficial to a government to have lower deficits this year and next

and push it down the road, like, oh, in five years, six years, who knows whose problem it will be. So that's why I'm a bit skeptical of that stretching the definition of investment and spreading the cost of these expenditures that are taking place now over a number of years. The government has announced plans to boost defense spending to 2% of GDP this year compared to 1.37% last fiscal year. And in dollar figures, that could mean something in the $63 billion. dollar range. Carney has now made a commitment to work towards 5% on defense. So we're talking about a

huge amount of money. Can you think of another time Canada has boosted spending at this scale? How did that go? Well, the only other time that comes to mind is before I was born, it was during the Second World War, when we provided a big cash infusion into the defense sector. So it's a very tall order to increase spending at that faster pace, especially if we were to deliver on that commitment at a time when many, many other countries are seeking to increase their military spending in Europe for obvious reasons, but also for other partners in Western alliances. So all the major allies of the U.S. and Canada are seeking to increase their expenditures. So it's going to be very costly if we deliver on that, but there's also a question of capacity.

When everybody is seeking to do this, trying to do the same thing at the same time, it becomes very difficult to deliver and costs go up. Something that could resemble that is the rush on toilet paper during the pandemic. There were alleged to be shortages. So everybody tried to stock up on that. I remember that time. It's very different. It's very different to stock up on missiles and fighter jets and tanks, but there's very limited capacity worldwide to produce armament of that quality, of a quality that's sufficient for Western armies, roughly at the same time.

And it takes time to build up that capacity to produce. So if everybody is in the same camp and tries to ramp up military spending, the capacity issue is likely to be in short supply. So it's possible. It's very expensive, but there will need to be big, big attention focused on increasing the capacity to respond to that demand. And it's possible. That's a really important point. Yeah. They might want to spend this amount of money, but in fact, it might be difficult because, like you said, the capacity might not be there.

So that's really interesting to bring that up. So this budget will go to a vote and it's a confidence vote, which means the government could fall if it doesn't pass. Carney is presiding over a minority government. How much do you think that affects how a budget gets put together? That's a very good question. So I think it depends on the prime minister and his government's belief that they can pass the budget without making compromise. If they don't think they can have it passed without compromise, then they have to seek the support of at least one opposition party. But if they think they don't need to have any compromise, they can build it not thinking about compromising for the support of other parties.

So I don't know the political situation and whether parties, all opposition parties, are really adamant that they will not support the budget. We've heard the interim leader of the NDP saying that abstention is a possibility. So it depends on each party's own situation and readiness and willingness to go into an election. And if the prime minister thinks he doesn't really need to make any compromise and others will decide to support a budget or abstain for fear of going to the electorate, then it doesn't affect his budget making that much. So Carney is a very different prime minister than his predecessor. and based on the previews of the budget we've heard so far, are these the kind of things you would expect to hear from a technocrat? Yes, I think what the prime minister and his ministers have indicated so far,

rewiring the Canadian economy, reducing the size of the public service to reallocate this spending to other areas, to change the economy and try to diversify our partnerships away from a big reliance on the U.S. towards something else, different partners, more reliable partners and big projects to foster the long-term productive capacity of the economy is exactly the type of things you'd expect from policy thinkers, policy nerds, as opposed to political creatures and people who are career politicians, but it's all speculation until we see what is in the budget. Just lastly, Eve, I just want to ask you, are you looking forward to budget day? Are you going to be watching very closely? I will be watching very closely. In fact, I'll be in the media lockup for this budget.

So it'll be a nice change for me to look at the budget with a different eye and not having to worry about drafting a report in the next couple of days or implementing these budget measures. So it's a nice change that I welcome and I'll be looking at the budget with a very interested eye. Eve, thank you so much for coming on this show. It's been great. My pleasure. Thanks for the invitation. That was Eve Giroux, President of the Association of Quebec Economists and the former Parliamentary Budget Officer from 2018 to 2025. That's it for today. I'm Cheryl Sutherland. Our producers are Madeline White, Michal Stein, and Ali Graham.

David Crosby edits the show. Adrian Chung is our senior producer, and Angela Pichenza is our executive editor. Thanks so much for listening and I'll talk to you soon.