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Institute on Governance

2025 Budget reflections from the IOG

November 11, 2025

Welcome to the IOG’s preliminary reactions to the 2025 Federal Budget. We start first with some reflections on the federal budget as a strategic document, then offer some big picture thoughts before we dig into some specific announcements about infrastructure, artificial intelligence (AI) and quantum technologies, science and innovation.

The Budget as an Instrument of Strategic Direction

In addition to being the central instrument of a government’s fiscal policy, a budget is a key mechanism for providing strategic direction,which is one of the pillars of public governance.

Sound governance requires that individual decisions be part of a cohesive and understandable whole that supports the achievement of the government’s mandate, and that is set out transparently in public documents such as party platforms, speeches from the Throne, budgets, and major fiscal and policy statements. This in turn contributes to two further pillars of public governance – effective performance and accountability.

With respect to performance, a budget should include a clear articulation of both near and longer-term expectations and objectives, including outcomes-oriented performance metrics and the identification of risks and mitigation strategies. Using such metrics, along with delivering the budget on a regular cycle in accordance with clear and consistent accounting and presentation principles, supports accountability by improving public capacity to gauge performance against commitments.

Public Service Impact

There has been much debate among commentators about whether Budget 2025 matched its hype. For the public service, there is little doubt. If it passes, Budget 2025 would clearly be very impactful for the federal public service. Just look at the numbers:

  • public service reductions of 40,000 from the post-pandemic high;
  • reducing the number of executives by 1000 in the next 2 years with an additional 650 to depart in the next year; and,
  • program expenditure cuts that as a percentage of operational base exceed those of the Harper Government’s strategic program review (4.5% versus 4.9%)

All the while, the Carney government has amped up the ambition for nation-building investments, housing and defence spending. Then, there is the money. Budget 2025 includes $50 billion over ten years for a new program called the Build Communities Strong Fund. This initiative will support investments in local infrastructure including housing, transportation, and health infrastructure and sets the table for action on critical policy challenges like homelessness and aging infrastructure. The Build Communities Strong Fund establishes a federal commitment to building local infrastructure, but its success will rely on partnerships with other orders of government and with private investors as well.  The federal government cannot do this alone. Provincial cooperation, in the form of matched funds and relaxed regulatory frameworks, will be necessary to meet federal targets on the development of affordable housing and to address local needs in the repair of crumbling infrastructure.  This initiative tells us that the federal government is looking to govern collaboratively with the provinces and municipalities on wicked problems and infrastructure-building.

Investments in AI, Quantum, Science and Innovation

The period of restraint ahead also represents an assertive step into a new industrial strategy that seeks to leverage artificial intelligence and quantum technology along with more traditional levers of science and innovation to establish Canada’s future economic prospects. The government announced two major investments, the first dedicating $925.6 million over five years for a “sovereign public AI infrastructure”, and the second targeting $334.3 million over five years in quantum computing.  Together, these investments point to new approaches to Canada’s economic growth, innovation and sovereignty.

What will these investments deliver?  The government’s investments in AI and quantum computing aim to boost AI adoption in domestic civil and defence domains and foster high-value economic activity and trade opportunities. The Budget referred to a “sovereign Canadian cloud”, which suggests that advanced computing capacity has the dual role of reducing Canadian reliance on international allies, and advancing our national security. The technological possibilities of AI and quantum computing are only just starting to become clear and the government wants to position Canada to engage in the tech race that is coming.

What exactly is quantum computing?  Quantum computing is related to quantum mechanics, based on principles such as superposition and entanglement, that allows much more complex calculations to be done than classic computers.  Essentially, in simple terms, it allows for vastly faster and more complex processing built on layers of computing, in something of the way 3-D chess expands and deepens standard chess. Where classical bits are expressed as 0 or 1, quantum bits, known as qubits, can operate at different levels simultaneously.

Overall, the Budget’s large investments in AI and quantum computing appear to be a commitment to this newest stage of a technological revolution, that puts Canada in a place where it can play a part in the burgeoning applications of AI and quantum computing and stimulate economic growth and civil and defence sovereignty.

We might consider investments in AI and quantum as bets on the latest technologies that require supports from science and from innovation. There has been a trend in recent years (almost back to the days of the Special Senate Committee on Science Policy or Lamontagne Report) to talk about science and innovation as two sides of the same coin. Yet, they are distinct activities with distinct inputs that produce different results. That distinction is alive and well in the 2025 federal budget which includes language that recognizes the distinct functions of research, science, and innovation and identifies investments in ways that may help each to grow and thrive in the Carney government’s vision of Canada. For example, those watching for science- and research-focused announcements will note the granting councils remain relatively untouched by the cuts (when we consider the investments made in the councils last year), and in fact they might come out ahead. Budget 2025 also includes investments in the Elevate IP program, IP Assist program, and for the Canada Foundation for Innovation. There is also a reference to implementing capstone which could solve some longstanding challenges with multidisciplinary research funding in this country.

On the innovation side, investments such as the Buy Canada program, Innovation Partnership Program, the Canadian Technology Accelerator, and many other budget references, are clear attempts to target Canada’s longstanding challenges with the valley of death (commercializing invention to realize social and or economic innovation) and technology adoption to improve productivity.

While the ultimate success of the Carney Government may depend on the willingness of the private sector to lean in on the country’s innovation, productivity, and economic transformation agenda much is also being asked of the public service to transform itself during a period of some restraint.  Budget 2025 will have far reaching consequences on the size, structure and ambition of the public sector for years to come. So, starting where we began we ask what strategic direction does Budget 2025 signal? IOG’s recent series on nation building discussed the role of each prime minister as a nation builder in their own right, and loosely categorized prime ministers into nation builders that focused on either infrastructure or policy and values. Prime Minister Carney has identified himself in the former category which opens the door for governance questions about direction and vision. The consistent vision so far is one of Carney the Builder or perhaps Carney the Ambitious. The details, however, remain to be filled in, and the gap between ambition and successful execution has foiled many an ambitious government in the past. Successful execution, notably the leveraging of private capital is key to this government plan and its future value proposition to Canadians.