Modernizing Canada’s Budgeting Approach

Modernizing Canada’s Budgeting Approach

A New Approach to Budgeting

The government is adopting a new way of budgeting that will make capital investment a national priority. The cornerstone of this new budgeting approach is a Capital Budgeting Framework that distinguishes day-to-day operational spending from expenditure that stimulates public and private sector capital investment.

The framework will be applied to the federal budget, while preserving comparability across different fiscal publications. It is designed to enhance—not replace—existing financial reporting. The Public Accounts of Canada will remain fully compliant with Public Sector Accounting Standards, which permit capitalization of costs for assets under government control.

Going forward, the government will also transition to a fall budgeting cycle, starting with Budget 2025. The fall timing, before the Main Estimates, will improve transparency and facilitate the oversight of public expenditure for Parliamentarians. It will also support effective financial planning for federal departments and agencies, provinces and territories, investors, and businesses. Organizations that rely on federal funding to deliver programs and services to Canadians will also have clarity on available funding ahead of the fiscal year and ahead of the construction season, ensuring projects can get underway without delay. The fall budget will be complemented by an economic and fiscal update in the spring.

The importance of capital formation

Capital investments are the building blocks to economic growth. By improving Canada’s productivity, capital investment fosters more—and better paying—jobs, supporting rising living standards over the long-term. However, U.S. business investment has increased steadily, Canada’s has struggled, remaining close to its 2015 level (Chart 1). Further, while many countries have accelerated investment in intellectual property, advanced technologies, and modern manufacturing to strengthen their economic potential, Canada’s investment has been significantly less concentrated in these types of forward-looking productivity enhancing investments (Chart 2). This lag in investment has constrained innovation, created risks to Canada’s competitiveness, and has left the economy less resilient. This investment gap poses a growing challenge in a global economy increasingly shaped by shifting trade dynamics and rapid adoption of artificial intelligence. Without a step-change in capital investment, Canada risks falling further behind. Addressing this requires renewed commitment from both the public and private sectors to make capital investments a national priority.

Capital Budgeting Framework

The new Capital Budgeting Framework establishes a consistent way to classify spending, including tax expenditures, that contribute to capital formation—referred to here as capital investment—while maintaining pre-existing categories used in budgets and financial reports. Drawing on best practices from other advanced economies, and adapted to the Canadian context, it sets out clear, standardized criteria to assess whether a given measure qualifies as capital investment.
Under this framework, capital investment is defined broadly as any government expense or tax expenditure that contributes to public or private sector capital formation, held directly on the government’s balance sheet or on that of a private sector entity, Indigenous community or another level of government. Within this broad definition, the intent is to focus on capital investments that meet the following criteria:

• Conditionality – whether the funding recipient is required to invest in capital formation to receive the benefit.
• Clear linkage – whether the spending encourages or enables capital investment in identifiable sectors or projects.

Spending that is not categorised as capital investment would be considered day-to-day operating spending. This would include major government expenditures like transfers to persons, health and social transfers, and the costs of running government operations and services, including salaries and benefits.
Applying the above criteria, federal government spending classified as capital investment would generally be categorized as follows:

• Capital transfers - transfers to other levels of government and organisations that are expressly intended for the recipient to invest in infrastructure or a productive asset.
• Capital-focused corporate income tax incentives - tax expenditures intended to incentivise new capital formation.
• Amortisation of federal capital - expenses recorded to spread the cost of capital assets owned or controlled by the federal government over their useful lives.
• Private sector research and development - direct funding, or tax incentives, for research and development activities that enable commercialisation or scale-up and raise future productive capacity.
• Support to unlock large-scale private sector capital investment - contractual agreements with proponents involving exceptional, significant operating subsidies designed to unlock incremental large-scale private capital investments.
• Measures to grow the housing stock - measures that accelerate new housing supply.

Further details will be released in Budget 2025, enabling Canadians to better understand how fiscal choices support future economic capacity.

Public Accounts

As a responsible fiscal manager, the government remains committed to ensuring the objectivity and integrity of its financial statements, which are presented in the Public Accounts of Canada. Results in this form will continue to be based on Canadian public sector accounting standards.

The lens of the new Capital Budgeting Framework will be applied to the federal budget, while preserving the ability for users to compare information across different financial publications, including the Public Accounts of Canada. The budget will continue to include tables categorizing planned spending according to Public Accounts concepts, in order to maintain the ability to compare budgeted amounts with results.

Fall Budgeting Cycle

The transition to a fall budgeting cycle will begin with Budget 2025, and will have the following implications:

• Pre-budget consultations will now take place in summer.
• The budget will be delivered in the fall, ahead of the Main Estimates.
• The budget will be the government’s main fiscal event, followed by a spring economic and fiscal update as the new fiscal year begins.

Having a budget in the fall—well ahead of the new fiscal year—will mean:

• Greater predictability and better planning for organizations, businesses, investors, provincial and territorial budget planners, and Canadians.
• More budget measures can be included in time for the Main Estimates, enabling parliamentarians to better oversee public expenditures. This responds to calls by the House of Commons Standing Committee on Government Operations and Estimates (OGGO) and the Parliamentary Budget Officer (PBO) for greater alignment between the budget and Main Estimates, which must be tabled in Parliament by March 1st every year.
• Align better to construction season, ensuring projects can get underway without delay. In the old cycle, budgets didn’t allow projects to take full advantage of the construction season. A fall budget cycle changes that – giving builders and investors a real head start.

The government remains committed to consulting on the implementation of budget measures, including tax and legislation.

Implementation  

• The release of Budget 2025 on November 4, 2025, will mark a shift to a fall budgeting cycle.
• Budget 2025 will present and apply the government’s new Capital Budgeting Framework.

Related product

• News Release