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It also raises further questions about which federal initiatives could face cuts and job losses as Ottawa’s spending power shifts towards the Canadian military, and the Liberals pledge to “spend less” on government operations to “invest more” on ways to grow the economy. 

In an interview Wednesday, Parliamentary Budget Officer Yves Giroux said the large scope of the savings exercise is “doable,” but not without consequences. “It’s just a matter of how much pain will that inflict on public servants and on Canadians,” he said. 

Despite Carney’s pledge earlier this year to “cap” the size of the federal public service, Giroux predicted that staff cuts — beyond attrition — “will be almost unavoidable,” unless Ottawa reduces grants and contributions to outside organizations like businesses, non-governmental organizations and others who receive federal funding. A combination of both is more likely, he said. 

“There will be consequences. There’s little doubt in my mind.”

Kevin Page, a former parliamentary budget officer, called the scale of the spending review — which he supports — “unprecedented in modern times.” Now president of the Institute for Fiscal Studies and Democracy at the University of Ottawa, Page said the review will need to “draw in” government grants and contributions to achieve savings needed to accommodate actions like the massive planned increase in defence spending to meet new commitments through the North Atlantic Treaty Organization (NATO). 

Last month, after devoting an additional $9 billion in spending this year to defence, Carney signed on to a new NATO pledge to spend the equivalent of 3.5 per cent of Canada’s gross domestic product (GDP) on “core” military funding like equipment and personnel by 2035, and another 1.5 per cent of GDP on defence-related investments like infrastructure the military can use. Depending on how Canada’s GDP grows over the next decade, the government needs to add upwards of $40 billion in annual funding to defence to meet that commitment. 

At the same time, Carney has promised to balance the government’s operational spending budget over the next three years, without cutting transfer payments to provinces and programs like dental care, child care, and public coverage for birth control and diabetes medication. 

Those commitments mean the government will need to redirect existing funds from other areas over the coming years, Page said — a possibility Carney himself alluded to in June when he signed onto the new NATO pledge. 

“Reviews are difficult,” Page told the Star by email. “Public servants do not like cutting programs and staff. Some citizens and stakeholders will be upset to lose subsidies.” 

The first details of the spending review emerged in media reports on Monday. Finance Minister François-Philippe Champagne and Treasury Board President Shafqat Ali sent letters to Carney’s cabinet members directing them to find billions of dollars worth of savings by the end of the summer, according to Champagne’s spokesperson Audrey Milette.

On Wednesday, Treasury Board spokesperson Rola Salem said the spending review will be based on about $190 billion in planned government funding for the current fiscal year. According to two government officials who spoke to the Star on condition they weren’t named, each government department is expected to hit savings milestones over the next three years out of their portion of this funding: 7.5 per cent in the 2026-27 fiscal year, 10 per cent in 2027-28, and 15 per cent in 2028-29. 

Three branches of government, however, are expected to achieve lower savings of two per cent by 2028-29, the officials said: the Department of National Defence, the Royal Canadian Mounted Police and the Canada Border Services Agency. 

The difference means the overall target for annual savings by 2028-29 is around $25 billion across the entire government, the officials said. That’s almost double what the Liberals pledged during the April 28 election campaign, when the party’s platform promised to find $13 billion in annual savings within three years through improvements to operations and efficiencies like the use of artificial intelligence. 

The cumulative total in targeted savings over the next three years is significantly higher as well, although the officials refused to confirm that number on Wednesday. 

David Macdonald, senior economist with the Canadian Centre for Policy alternatives, published  in June that predicted the smaller target the Liberals campaigned on would already lead to the deepest federal cuts since the Jean Chrétien-era of the 1990s. Back then, the federal government was intent on wrestling down stubborn debt with a drive to balance Ottawa’s books after years of heavy deficit spending. 

In an interview Wednesday, Macdonald said the scale of the savings exercise is much higher than expected. That raises significant questions, he said, including whether funding for Indigenous communities, foreign aid and more could be subject to cuts. 

“Now this is reaching into grants, contributions, transfers to other levels of government, to non-profits,” Macdonald said. “There’s just a lot more on the table now.” 

For Sharon DeSousa, president of the Public Service Alliance of Canada that represents thousands of federal government workers, the Liberals appear at risk of breaking their promise to “cap, not cut” the civil service. DeSousa, who was among the union leaders who met with government officials to discuss the spending review this week, said she is concerned the plan is moving too fast, with a deadline set for the end of August to identify where the savings will come from. 

“At the end of the day, we’re a government that delivers services. We’re not a business,” she said, calling for the unions to be involved in finding savings so that public services “don’t suffer.” 

Giroux said the true test will come in the fall when the Carney government delivers its first budget. The key question, he said, is whether the savings lead to permanent spending reductions, and how much of the freed up money goes towards new government initiatives. 

“Based on what we heard, this seems to be cuts, and additional reallocations (of existing money) will be requested of departments when they seek funding for new initiatives,” he said. “We’ll see what ends up happening.”