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Budget Update📈📉

Welcome back.

It was a busy week in Canadian political news. We had multiple floor crossings and a brand new Canadian budget to review. Why does this matter?

The Canadian budget reveals the priorities, trade offs, and a growing deficit that continues to shape future policy in our country.

A great infographic from Canoe financial:

Revenue. Where it comes from?

• The federal government expects to collect about $507 billion in revenue in 2025 to 2026. The three biggest contributors are:

Personal income tax

• The largest funding source by far, at roughly $238 billion. Canadians themselves are the primary engine of the budget, contributing almost half of every dollar the government spends.

Corporate income tax

• Businesses contribute $97 billion, the second largest source.

Goods and Services Tax (GST)

• Consumption drives $54 billion through the GST.

Other revenue sources include excise taxes, employment insurance premiums, enterprise Crown corporations, and investment returns. But taken together, the story remains simple: personal and corporate income taxes fund most federal spending.When revenues fall short of planned spending, the gap is filled with borrowing. In Budget 2025, that gap is large.Spending. Where the money goes.

• Planned spending totals about $585 billion including actuarial losses, with a focus on three major areas:

Individual Supports:$144 billion in major transfers to persons

• Old Age Security and Guaranteed Income Supplement: $83 billion

• Employment Insurance benefits: $30 billion

• Canada Child Benefit: $30 billion

These programs represent direct cash support to households. They are predictable, indexed, and politically durable.Support for provinces and municipalities:$111 billion through transfers

• Canada Health Transfer: $57 billion

• Canada Social Transfer: $19 billion

• Equalization and territorial financing: $29 billion

Health care remains the single biggest provincial transfer. Growth in this category continues to exceed revenue growth.Direct program spending and operations:$266 billion on programs and government operations

• Indigenous reconciliation and services: $44 billion

• Infrastructure and housing initiatives: $27 billion

• Climate and natural resource programs: $18 billion

• International assistance: $20 billion

• Defence and security: $60 billion combined

This is where most new policy announcements appear. Key initiatives:

• Housing and infrastructure to address affordability pressures

• Defence modernization and procurement cycles

• Indigenous reconciliation funding commitments

• Climate related and natural resource transition programs

These areas are increasingly multi year and structural, not one time line items.The deficit.Even with more than half a trillion in revenue, expenses are rising faster.

• Deficit before actuarial losses: about $73 billion

• Net actuarial adjustments: about $5 billion

• Final projected deficit: $78 billion

Borrowing fills the gap and adds to debt servicing costs. Public debt charges are now $56 billion, making interest the fifth largest line item in the entire budget. Higher rates are translating into higher carrying costs on federal debt.

For our thoughts on this - tune into the pod.

Podcast & YouTube Recommendations🎙

• Daniel Yergin on Energys Transition:

• Invest Like The Best:

Best Links of The Week🔮

• Boaz Barak on the counterintuitive economics of AI. This is a very good piece, that thinks clearly about bottlenecks: if we automate lots of labor, and that makes us richer, that makes the remaining labor much more valuable. But AI messes up the classic growth equation, because it’s a case where capital is increasingly fungible with labor. We’ll need a whole new formula to even describe what growth looks like in an AI-heavy economy.

• Richard Dewey et. al. trained a model to play a simplified version of liar’s poker via self-play, and then pitted it against experienced human player. They also had it play against LLMs (one interesting note there is that the LLMs tend to play cautiously; they speculate that part of what’s happening is that so much poker advice for beginners suggests folding more often, and that’s carrying over to this domain). Liar’s poker turns out to be a surprisingly complicated game with a vast number end states, so playing it means doing a tiny bit of deterministic reasoning and accumulating an arsenal of nested heuristics—which is a good description of a lot of machine learning.

• “For months, a small company in San Francisco has been pursuing a secretive project: the birth of a genetically engineered baby. Backed by OpenAI chief executive Sam Altman and his husband, along with Coinbase co-founder and CEO Brian Armstrong, the startup—called Preventive—has been quietly preparing what would amount to a biological first. They are working toward creating a child born from an embryo edited to prevent a hereditary disease. In recent months, executives at the company privately said a couple with a genetic disease had been identified who was interested in participating.” Source: WSJ

• Perplexity to pay Snap 400mm to integrate their AI model into their search - ““The deal gives Perplexity exposure to more than 940 million Snapchat users, who will get answers from its AI engine when they ask questions to the company’s My AI chatbot.”

“The new feature will be integrated into the app’s interface early next year. Snap said it will start recording revenue from this deal in 2026.”Source: Techcrunch

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