Defence expected to find operational savings even as its budget balloons

OTTAWA — The Department of National Defence will not be spared from Prime Minister Mark Carney’s cost-cutting drive — even though overall defence spending is set to balloon in the coming years.

Finance Minister François-Philippe Champagne sent letters to cabinet ministers Monday asking them to find savings of 7.5 per cent in their budgets starting in fiscal 2026, a spokesperson for the minister confirmed.

That savings target rises to 10 per cent the following year and 15 per cent in 2028.

The Globe and Mail first reported on the plan to sharply reduce program spending across the government.

A spokesperson for the Treasury Board Secretariat told the Canadian Press that the Department of National Defence, the Canada Border Services Agency and the RCMP will instead be tasked with total cost reductions of two per cent over three years.

The government is taking a “broad and balanced approach” to the spending review that recognizes “the importance of maintaining key investments in critical areas,” spokesperson Rola Salem said in an email.

Champagne’s spokesperson Audrey Milette said the policy speaks to Carney’s promise to balance the operating side of Ottawa’s budget in the coming years while rapidly increasing defence spending to meet NATO targets.

An internal message from Chief of the Defence Staff Gen. Jennie Carignan and Deputy Minister of National Defence Stefanie Beck to defence personnel, which was sent out Wednesday afternoon, said the department’s target for spending cuts is “lower than most organizations.”

Spending reduction proposals that are approved by Treasury Board will appear in the 2026–27 Main Estimates.

“This target does not impact the funding received following the prime minister’s announcement in June of new investments in the Canadian Armed Forces, and we will continue to invest more in the CAF year-over-year than any proposals brought forward to reduce spending on day-to-day operations,” the internal message said.

“Our focus will be on prioritizing and streamlining activities, reallocating where possible and reducing unnecessary duplication of effort.”

Carney’s defence announcement in early June amounts to an extra $9.3 billion in spending this year. He made that announcement before NATO allies pledged at last month’s summit to ramp their defence and security budgets up to five per cent of GDP by 2035.

Defence Minister David McGuinty confirmed for journalists Monday that he received Champagne’s letter but offered little indication of where cuts could be made in his department.

“I haven’t had a chance to talk to my colleague, but I have been part of no discussions with respect to, for example, significant social services cuts at a federal level in order to achieve our defence priorities,” he said at a press conference at CFB Trenton.

“The question of redistribution of expenditures is one I would much rather leave with the minister of finance.”

Ottawa is preparing to present its 2025 budget in the fall after forgoing a traditional spring fiscal update.

Since taking over the Liberal leadership earlier this year, Carney has touted plans to “spend less” and “invest more” to build Canada’s economy in the face of U.S. trade aggression.

The Liberal platform in April’s federal election projected a deficit of $62 billion this year and promised to balance the operating budget by 2028 while continuing to run a deficit in capital spending.

In the absence of a spring budget or specific outlines for cuts, the parliamentary budget officer and other critics have argued the federal budgetary deficit could grow beyond that level this year, thanks to Ottawa’s recent spending announcements.

The union representing public service workers warned Tuesday of widespread job losses and reduced services if Ottawa’s planned cuts materialize.

The Public Service Alliance of Canada said in a media statement that while it’s ready to work with the federal government to find savings across the public sector, the cuts as proposed could lead to shuttered programs and longer wait times for things like passports.

Meanwhile, on Wednesday, Treasury Board President Shafqat Ali announced a new review to cut red tape across the public service.

Ministers are expected to review regulations in their portfolios and propose actions to remove outdated rules, reduce duplication with provinces and generally make it easier to deliver services.

Ministers’ reports on next steps for cutting regulation are due within 60 days.

Michael Sabia, tapped last month to head the Privy Council Office in Ottawa, said in a letter to public servants on Monday that the federal bureaucracy must streamline its operations because “internal processes have become quite complicated.”

“Trying to simplify processes is going to be a priority. I know it is easier said than done. But it has to be addressed,” he wrote.

— with files from Kyle Duggan

This report by The Canadian Press was first published July 7, 2025.

Craig Lord, The Canadian Press