“Canada Strong” budget features increased investment in infrastructure
A brief summary and analysis on the Federal Budget.
The government of Canada has released its 2025-26 budget, which has received mixed reviews. The budget proposes a budgetary deficit of $78.3 billion, nearly doubling the $36.3 billion deficit from 2024-25. While there are planned spending reductions of $60 billion over five years— including reducing the number of federal workers—the increased investments will lead to further increases in government debt. The net debt is expected to rise from $1.48 trillion to $1.8 trillion by 2029-30. The federal debt-to-GDP ratio is projected to be 42.4% in 2025-26 and 43.1% in 2029-30. Consequently, despite targeting an "operational balanced budget" by 2027-28, the costs associated with servicing the debt will still result in a budget deficit of $56.6 billion by 2029-30. Public debt charges, expected to be $55.6 billion in 2025-26, are projected to increase to $76.1 billion by 2029-30. As a result of larger deficits and growing debt, the Canadian dollar has weakened.
From an investment perspective, the budget outlines targeted spending of $280 billion over the next five years for new infrastructure, productivity and competitiveness measures, defense, and housing.
Total infrastructure investments will amount to $115 billion over five years, allocated as follows: $54 billion for core public infrastructure (water and transit), $19 billion for Indigenous and municipal infrastructure, $5 billion for trade and transport, and $37 billion for other infrastructure projects.
Additionally, $110 billion over five years is designated for productivity and competitiveness initiatives. This includes funding for regional economic development, investments in emerging technologies (such as AI, quantum computing, and electric vehicles), productivity super-deductions, innovation support programs, and scientific research and development.
The 2025 Federal Budget is titled “Canada Strong.”
Defense spending is also receiving a significant boost, with a budgeted $81.8 billion over five years aimed at "rebuilding, rearming, and reinvesting." Canada will meet NATO's 2% defense spending target this year and aims to fulfill the 5% Defense Investment Pledge by 2035, which could reach $150 billion annually by that time.
The budget allocates $25 billion over five years for housing initiatives. This includes $16 billion for existing programs, $7 billion under the Build Canada Homes program, and $2 billion in tax measures (such as exempting homes under $1 million from GST).
By allocating $280 billion in total capital investments over five years, with annual spending projected to "double from $32 billion in 2024-25 to $60 billion by 2029-30," the budget creates opportunities for various sectors. The implementation of a "Buy Canadian" policy will prioritize Canadian suppliers in federal procurement and require the use of Canadian materials in infrastructure and construction projects, potentially reshaping supply chain dynamics.
Given these spending targets, we will be assessing the potential implications for various Canadian equities and how this may translate into real growth opportunities. This assessment will focus on sectors such as engineering and construction, heavy equipment suppliers, defense equipment, energy, and financial services. However, there is a risk that the budget may not pass at all. Both the Conservative Party and the Bloc Québécois have indicated they will vote against it. If the budget does fail, there is a risk that an early election may be called. However, Prime Minister Carney is only two seats shy of a majority and could potentially secure passing of the budget if the NDP either votes in favor or abstains from the vote.
Kai Lam, CFA, CFP
Chief Investment Officer
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