Prime Minister Mark Carney’s government is moving ahead with a major plan to shrink Canada’s historically large federal bureaucracy, but the strategy comes with a surprising tradeoff: it will cost more than a billion dollars upfront to save just $82 million a year on payroll.
Instead of mass layoffs, the Liberals are reviving a 1990s-era solution that encourages older public servants to retire early with full pensions. According to federal budget documents, the new Early Retirement Incentive will cost roughly $300 million per year over five years, totalling $1.5 billion. In return, the projected permanent payroll savings amount to $82 million annually, meaning the program may not fully pay for itself until the 2040s.
The move follows explosive public-sector growth under former prime minister Justin Trudeau, who increased the size of the civil service by 42 per cent over nine years. The number of federal employees peaked at 367,772 in 2024 and sits just below that level today. Carney’s first budget pledged to eliminate approximately 40,000 positions as part of a shift to a “more sustainable” public service.
To avoid labour unrest, the government is steering clear of compulsory job cuts. Instead, about 68,000 eligible employees aged 50 and older have been notified of the new early-retirement option. Under the most generous version, a worker with 10 years of service can retire up to five years ahead of schedule and still receive an unreduced pension. Given the average public service pension of $38,870, this could be worth nearly $194,000 per employee.
Ordinarily, retiring early carries steep financial penalties — a five per cent permanent reduction in pension for every year taken before the standard age — but the incentive waives those penalties entirely. That makes the offer expensive, but attractive, and the Public Service Alliance of Canada has already endorsed the program for avoiding layoffs.
The approach mirrors an initiative used under Jean Chrétien in the 1990s, when Ottawa spent approximately $3 billion to eliminate 55,000 civil service jobs. Those measures helped reduce the public payroll with minimal strikes or disruptions, though at a high immediate cost.
The new plan draws similar criticism: it prioritizes stability over savings. While Ottawa hopes to downsize the bureaucracy without conflict, the slow pace of financial return raises questions about whether this is the most efficient path forward.
Beyond the fiscal battle in Ottawa, political drama continues across the country. In British Columbia, Conservative leader John Rustad abruptly resigned after weeks of internal turmoil and attempts to remove him from the party leadership. Premier David Eby, despite speculation about a snap election amid opposition fractures, says he will not send voters to the polls.
