Investment Multipliers

The Standing Senate Committee on National Finance requested a study of the rates of return on investment announced in Budget 2025 by type of investment, according to different scenarios.

Budget 2025 introduced $41.3 billion in new federal measures to support third-party investment activity. Finance Canada estimates that, through cost-sharing with other governments and the private sector, these measures could support a total of $165.8 billion in incremental investment activity. Finance Canada assesses that previously-announced federal investments of $243.7 billion will generate $914.2 billion in total investment using similar cost-sharing assumptions, which sums to the government’s stated investment target of $1.08 trillion.

This note provides PBO’s independent estimates of the real GDP impact of the $41.3 billion in announced new capital measures, using multipliers derived from PBO’s macroeconomic model. These estimates are distinct from, and should not be compared with, PBO’s previous note on the government’s stated target of $1.08 trillion in total investment, which analyzed Finance Canada’s cost-sharing methodology.

Budget 2025 introduced $41.3 billion in new measures to support third-party investment activity across five program areas: infrastructure, private research and development (R&D), housing, industrial development programs, and tax measures, which include accelerated depreciation and immediate expensing, as well as other tax incentives. As documented in a previous PBO note, Finance Canada estimates that, through assumed cost-sharing ratios with other governments and the private sector, this $41.3 billion could support a total of $165.8 billion in investment activity. That note explained Finance Canada’s methodology and assessed its assumptions; it did not constitute an endorsement of Finance Canada’s approach, nor did it estimate the macroeconomic impact of the measures.

The Standing Senate Committee on National Finance requested a study of the rates of return on the new investment of $41.3 billion announced in Budget 2025 by type of investment and under different scenarios. To assess these rates of return, PBO estimates economic multipliers that measure the impact of additional investment on real GDP on a net National Accounts basis; in other words, how much economic activity can be expected to be generated in Canada from this spending, after taking account of factors like current import leakages to other countries to purchase investment inputs. This methodology does not include a calculation for the deadweight costs of taxation to finance these investments, or their debt service costs.

Since the five program areas of the $41.3 billion in total investment are not explicitly represented in PBO’s existing macroeconomic model, each is proxied by a corresponding National Accounts component that is most aligned to that category, as shown in Table 1. The impact of a permanent, inflation-adjusted one-dollar increase in that component is then simulated. For accelerated depreciation, immediate expensing, and other tax incentives, the multiplier is approximated by simulating a reduction in the effective federal corporate income tax rate.

Investment multipliers provide a simple, indicative estimate of the potential impact on real GDP of a permanent (inflation-adjusted) one-dollar increase in gross fixed capital formation. As with all macroeconomic analysis, multiplier estimates depend on the structure of the model used and the economic environment in which the shock occurs.

Each multiplier measures the impact of a one-dollar increase in the relevant investment category taken in isolation. They should therefore not be interpreted as a measure of the combined economic impact of Budget 2025 investment measures; when the measures are implemented together, projects will compete for the same workers, capital and material inputs and financing. These interactions across program areas mean that the combined impact differs from the sum of the individual multiplier effects.

As noted above, these estimates also do not account for how government support is financed—whether through higher taxes, lower spending elsewhere, or higher deficits—and they do not capture other potential spillover effects that are not represented in the model. Monetary policy can also affect the size of multipliers if higher investment leads to stronger economic activity and/or inflationary pressures.

PBO estimates investment multipliers under two scenarios: one in which monetary policy responds to changes in economic activity and inflation generated by higher investment, and one in which it does not. Table 2 summarizes the multiplier estimates for each program area under both scenarios using the macroeconomic model used in PBO’s June 2026 Economic and Fiscal Outlook.