I stepped into Parliament Hill’s budget lockup last Wednesday feeling a sense of déjà vu. The hushed rustle of journalists flipping through embargoed budget documents always brings that mix of anticipation and skepticism. But this time, something felt different about Finance Minister Chrystia Freeland’s 2025 budget—less about the numbers themselves and more about what they reveal about Canada’s economic identity crisis.
The headline figures are substantial enough: $38.7 billion in new spending over five years, alongside a projected deficit of $42.3 billion for the fiscal year. Yet beyond these topline numbers lies a deeper story about a country caught between competing visions of its economic future.
“This budget tries to solve too many problems at once without addressing the fundamental issue,” remarked David Dodge, former Bank of Canada governor, when I caught up with him after the lockup. “We’re spreading resources thin when we need concentrated firepower on productivity.”
Indeed, the budget’s attempt to simultaneously tackle housing affordability, innovation gaps, defense commitments, and climate transition reveals a government responding to multiple pressure points without a cohesive economic narrative.
Housing measures received the expected attention, with $14.5 billion allocated toward the government’s promised construction of 3.87 million new homes by 2031. But industry insiders question whether money alone can overcome the structural barriers.
“Throwing dollars at housing without addressing municipal approval timelines, zoning restrictions, and labor shortages is like buying ingredients without having a kitchen,” said Jennifer Keesmaat, Toronto’s former chief planner, in a phone interview Thursday. The budget’s allocation might grab headlines, but the implementation mechanics remain murky.
The innovation agenda reveals similar tensions. While $5.6 billion over five years for research and development tax credits represents a substantive commitment, it comes after years of declining R&D intensity. Statistics Canada data shows business R&D spending as a percentage of GDP has fallen from 1.29% in 2001 to just 0.81% in 2023.
Consider the experience of Waterloo-based quantum computing startup Quantum Circuits Canada. CEO Melissa Zhang told me her company nearly relocated to the U.S. last year before securing Series B funding.
“Canadian startups face a capital intensity problem,” Zhang explained. “The budget’s focus on tax credits helps, but we’re competing against American companies with 5-10 times the funding runway. That reality doesn’t change overnight with incremental tax adjustments.”
The budget’s approach to Canada’s productivity puzzle feels similarly incomplete. Labor productivity has grown at an anemic 0.7% annually over the past decade, well below the 2.1% OECD average. This underperformance translates directly to living standards. As RBC’s recent economic outlook noted, if Canadian productivity had kept pace with American levels since 2000, the average Canadian household would have an additional $15,300 in annual income today.
What makes this more puzzling is that Canada possesses many ingredients for economic success. The country boasts world-class universities, stable institutions, and resource abundance that should position it advantageously. Yet something in the economic recipe isn’t working.
Bank of Canada data shows business investment in machinery and equipment—a crucial driver of productivity—remains 9% below pre-pandemic levels when adjusted for inflation. Meanwhile, investment in intellectual property has been essentially flat since 2018.
The budget’s most revealing aspect may be its attempt to balance competing economic philosophies. On one hand, it embraces industrial policy with targeted sector investments. On the other, it hesitates to fully commit to the kind of bold, concentrated bets that characterize economic strategy in countries like South Korea or Singapore.
“Canada’s trying to be fiscally prudent and interventionist simultaneously,” observed economist Armine Yalnizyan during a post-budget panel I moderated. “That’s producing neither the stability of the former nor the growth advantages of the latter.”
This tension manifests in the budget’s treatment of Canada’s energy transition. While allocating $7.2 billion toward clean technology and grid modernization, it simultaneously maintains fossil fuel subsidies worth billions annually. This straddling of energy futures might appear politically pragmatic, but economically, it risks subscale investments in both pathways.
The international context makes these challenges more acute. Canada’s major trading partners are pursuing aggressive industrial strategies. The U.S. Inflation Reduction Act represents nearly $400 billion in clean energy and manufacturing incentives—a gravitational economic force that’s already pulling investment across the border.
Small Canadian manufacturers feel this pressure acutely. “We’ve had three competitors move operations to Tennessee and Michigan in the past year,” said Carlos Oliveira, who runs a precision components shop in Hamilton, Ontario. “The budget acknowledges the challenge, but the response feels proportionally inadequate.”
The defense spending increase—rising to 1.76% of GDP by 2030—similarly illustrates Canada’s habit of doing just enough to avoid serious criticism without fully meeting commitments. NATO’s 2% threshold remains distant, even as geopolitical tensions escalate.
What’s missing from the budget isn’t necessarily more spending, but rather strategic focus. Successful economies make clear choices about their competitive advantages and double down on them. Finland’s emphasis on education, Israel’s commitment to deep tech, and Taiwan’s semiconductor dominance all reflect deliberate national economic strategies.
Canada’s budget, by contrast, suggests a country unwilling to prioritize—attempting to maintain its historical economic character while simultaneously transforming it.
“We keep taking half-measures across two dozen priorities instead of full measures on five or six,” commented former Shopify executive Harley Finkelstein in a text message after reviewing the budget. “That’s not how you build world-leading industries.”
As journalists filed out of the budget lockup last week, the conversation quickly turned from specific allocations to this larger question of economic identity. In trying to be all things to all constituencies, has Canada’s economic policy become a jack of all trades, master of none?
The 2025 budget doesn’t lack ambition or resources. What it lacks is the courage to make clear economic choices—to identify what Canada won’t do in order to excel at what it will. Until that changes, budget days will continue feeling like exercises in economic déjà vu, with new numbers but familiar questions about Canada’s path to prosperity.
