Prime Minister Mark Carney’s government has ordered the biggest fiscal retrenchment since the 1990s, telling every department—except Defence, the RCMP, and Border Services—to carve out long-term savings that will rise to 15% of operating budgets by fiscal year 2028-29.
Cabinet letters set interim targets of 7.5% in 2026-27 and 10% in 2027-28, with the aim of freeing roughly $25 billion once the plan is fully phased in.
Parliamentary Budget Officer Yves Giroux calls the goal “doable, but not without consequences,” warning that “staff cuts—beyond attrition—will be almost unavoidable unless Ottawa slashes grants and contributions.”
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“It’s just a matter of how much pain will that inflict on public servants and on Canadians,” the PBO said.
Kevin Page, the former PBO who now heads the Institute for Fiscal Studies and Democracy, labels the exercise “unprecedented in modern times.” Page argues that only a sweep of external transfers can generate savings big enough to bankroll Carney’s parallel commitment to a massive defence buildout.
In late June, Canada signed NATO’s new Defence Investment Pledge, committing 3.5% of GDP to core military spending and another 1.5% to infrastructure by 2035. Carney hailed the target as a “once-in-a-generation push” that will require tens of billions in fresh outlays each year.
Yet Carney also promises to balance day-to-day operations within three years while shielding marquee social programs such as child care, pharmacare, and dental care. That leaves Indigenous services, foreign aid, and research grants exposed, says Canadian Centre for Policy Alternatives economist David Macdonald, who warns the cut list is now a lot bigger than Canadians were told during the election.
“Cutting jobs means cutting services. Full stop,” PSAC national president Sharon DeSousa said after nearly 2,000 members received workforce-adjustment notices. She accuses the Liberals of abandoning their campaign pledge to cap, not cut the civil service.
Treasury Board data show the federal headcount fell by almost 10,000 last fiscal year even before the new mandate took hold, and employees on term contracts have begun receiving non-renewal notices. Meanwhile, Carney reiterated his mantra—“spend less, invest more”—in a video posted Thursday, underscoring the political stakes if promised investments fail to materialise.
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