As consultations for the next federal budget unfold, the Montreal Economic Institute (MEI) is urging Prime Minister Mark Carney’s government to pivot sharply from the status quo. In its pre-budget submission, the think tank calls for deep spending cuts, a rollback of costly new programs, and a sweeping reduction in regulatory burdens that have stifled Canada’s economic momentum.
“Canada’s economy is stagnant, and its fiscal outlook is grim,” says Gabriel Giguère, senior public policy analyst at the MEI. “These are not just numbers on a page; this is debt taken out in our names, adding pressure on families already reeling from recent inflation.”
The fiscal challenges are mounting. The federal debt sits at $1.4 trillion, and the C.D. Howe Institute projects a $92-billion deficit in Carney’s first budget for 2025–2026. While the government has pledged to reduce program spending by 15 per cent by 2028–2029—following cuts of 7.5 and 10 per cent in the preceding years—MEI warns that these measures won’t meaningfully reduce total spending without a broader overhaul of federal operations.
One proposed solution: a 17.4 per cent reduction in the federal bureaucracy, echoing the Chrétien-era reforms of the 1990s. MEI estimates this could eliminate 64,000 public sector jobs and save $10 billion annually.
The institute also flags the ballooning costs of recent federal initiatives. The dental care program is projected to cost $13 billion over five years, while pharmacare will reach $13.4 billion by 2027–2028. MEI notes that health care is constitutionally a provincial responsibility, raising questions about the federal government’s expanding role—and its price tag.
“Government excesses combined with overregulation work in concert to strangle the economy,” says Giguère. “This is costing us jobs, investment, and government revenue.”
Federal regulations have surged by 37 per cent between 2006 and 2021, reaching 320,000. Statistics Canada estimates this growth has reduced real GDP by 1.7 percentage points, employment growth by 1.3 points, and labour productivity by 0.4 points. MEI suggests that maintaining 2006 regulation levels could have led to 10 percent more business start-ups in 2021.
Sector-specific regulations are also under scrutiny. Ottawa’s oil and gas emissions cap, set to take effect next year, aims to cut emissions by 35 per cent below 2019 levels. However, reports from Deloitte and the Parliamentary Budget Officer (PBO) warn that the cap will function as a production limit.
Deloitte projects a one per cent GDP loss by 2040—equivalent to $34.5 billion in constant 2017 dollars—and the elimination of 112,900 jobs. The PBO adds that oil and gas production would need to be 4.9 per cent lower than current forecasts between 2030 and 2032 to meet emissions targets.
With oil and gas contributing over seven per cent to Canada’s GDP and ranking among the top global exporters, MEI argues that such policies risk undermining a cornerstone of the national economy.
“Our advice for Ottawa is to get out of the way,” says Giguère. “Our stagnating standard of living proves that government expansion across all areas does not produce economic prosperity, and doubling down on this approach will only make matters worse.”
As the Carney government prepares its first budget, MEI’s message is clear: Canada needs a course correction—one that prioritizes fiscal discipline, regulatory reform, and economic growth.
The MEI’s full pre-budget submission is available here.
Photo: Pixabay and iStock
