The federal public service plays a vital role in implementing policies and delivering services that affect Canadians’ daily lives, from designing and administering employment insurance and old age security benefits, to immigration and international aid programs, to an increasing number of regulatory requirements.
Over the past decade (2013-2023), the federal public service has expanded significantly (36% increase). However, is such a rapid expansion economically sustainable?
Canada’s expanding federal public service: A growing imbalance
Canada’s federal public service has experienced a significant expansion over the past decade, reaching historic workforce levels by March 2023. As of March 31, 2023, the core federal public service included 229,289 indeterminate (permanent) employees, 28,024 term employees, 7,672 student workers, and 9,234 casual employees—totaling 274,219 individuals (Figure 1). When broader federal agencies are included, this number rises sharply to 367,772 employees.of the public sector. [1]
The current level of federal employment reflects not only the increasing complexity of government operations and rising demand for public services, but also a decade of major program and policy initiatives (e.g., Canada Dental Care Plan, pandemic support measures, etc.). While such workforce growth may help government respond to evolving societal needs, it also raises important questions about the long-term fiscal sustainability and the overall efficiency of the public sector.
Figure 1
FEDERAL PUBLIC POPULATION AS OF MARCH 31,2023
Source: Public service commission
Between 2013 and 2023, federal employment surged by 36%. In contrast, private sector employment grew by just 13%, and Canada’s population increased by 15% (Figure 2). This widening gap highlights a structural imbalance, where public sector growth is decoupled from private sector dynamism and demographic realities.
Figure 2
GROWTH (index 2013 = 100) OF THE FEDERAL, PRIVATE SECTOR WORKFORCE AND CANADIAN POPULATION
Source: Statistics Canada. Table 14-10-0027-01 Employment by class of worker, annual (x 1,000), Statistics Canada, Table 17-10-0009-01, Population of the federal public service - Canada.ca , authors’ calculations.
Again, while the significant growth in Canada’s federal public service over the past decade may partially reflect evolving political priorities, heightened public expectations, and an increased demand for government programs and services, it also raises important concerns about long-term fiscal and economic sustainability. The expansion of the public sector must be considered in relation to the capacity of the private sector, which ultimately funds public operations through taxation. However, over the same period, the private sector has grown at a much slower pace than the federal workforce—creating a widening gap between those who produce economic value and those whose employment depends on the redistribution of that value.
Relying on a slower-growing private sector to sustain a rapidly expanding public service risks placing mounting pressure on public finances—particularly in an environment characterized by economic uncertainty. If this trend continues unchecked, the public sector could come to absorb an increasingly large share of the national workforce.
What is even more striking is that, during the same period, federal employment growth has been accompanied by a significant increase in payroll costs, as illustrated in figure 3. Between 2013 and 2023, inflation-adjusted federal payroll expenditures rose by 49%. This increase comes despite the fact that government employees in Canada already benefit from a considerable wage and benefits premium compared to their private-sector counterparts. For example, in 2023, the average hourly wage in the private sector was approximately $33.90, compared to $42.50 in the public sector.[2]
Figure 3
GROWTH (index 2013 = 100) IN FEDERAL PAYROLL EXPENSES
Source: Statistics Canada. Table 10-10-0015-01 Statement of government operations and balance sheet, government finance statistics, quarterly (x 1,000,000), authors’ calculations
SMEs, that can only raise wages to the extent that they can remain viable and competitive, compete for talent with a public sector that faces none of these market limits. These trends risks diverting talent and resources away from private sector, thereby constraining the entrepreneurial dynamism, investment, and innovation that are vital to Canada’s long-term prosperity.
This expansion of the federal workforce and the associated rise in compensation costs are also unfolding against a backdrop of the government’s deteriorating fiscal health. Between 2013 and 2023, Canada’s federal debt grew by 96%,[3] underscoring a growing imbalance between public spending and revenue. Without a course correction, the burden on future public finances could intensify, further limiting the fiscal room needed to support long-term economic growth.
The growing size of the Federal government poses broader economic risks
Over time, a structurally imbalanced economy—where the public sector expands faster than the private sector—can weigh heavily on Canada’s economic resilience. The rapid growth of the federal workforce and the accompanying surge in payroll expenditures risk crowding out private-sector activity. This trend can reduce overall productivity, slow long-term economic growth, and limit the government’s ability to respond to future economic or fiscal shocks.
Despite the rising cost of labour, productivity growth in Canada has been stagnating for years. As shown in figure 4, both the private and public sector have seen little measurable improvement in output despite increased staffing and compensation over the past years. This disconnect between labour cost and productivity is a warning sign: when more resources are being consumed without corresponding gains in efficiency or outcomes, long-term prosperity is at risk.
Public confidence in government efficiency may also erode if the expansion of the federal workforce is not accompanied by demonstrable improvements in service quality, responsiveness, or transparency. Taxpayers are unlikely to support continued spending increases if they do not see a clear return on investment.
Figure 4
Rising labour costs outpace stagnant productivity
Source: Statistics Canada. Table 36-10-0206-01: Indexes of business sector labour productivity, unit labour cost and related measures, seasonally adjusted, authors’ calculations.
Business owners are concerned about the size of the federal public service
The continued expansion of the federal public service—both in headcount and compensation—has become a growing source of concern for Canada’s small and medium-sized enterprises (SMEs), which represent the core of the private economy. According to recent survey data, 73% of SME owners are concerned about the size of the federal workforce, and an overwhelming 95% express serious concern about current levels of government spending and public debt (Figure 5) .
While the federal public service has grown steadily, this has not been matched by improvements in economic performance or the business environment. In theory, a larger public sector could support business owners through streamlined regulations and efficient services. In practice, however, Canadian businesses face a costly and complex regulatory landscape—amounting to $51 billion annually.[4] Nearly half (44%) of business owners cite red tape as a top concern, second only to taxes and rising operational costs.[5] This raises questions about whether growing public spending is delivering meaningful value to the private sector.
Figure 5
SME's concerns about the federal government size
Source: CFIB, Your Voice survey, September 2024, n = 2,120.
This sense of imbalance is reinforced by sluggish economic performance. Between 2013 and 2023, Canada’s real GDP per capita—one of the clearest indicators of living standards—grew by just 3.8%. In contrast, the United States saw nearly five times that rate of growth over the same period.[6] This observation is even more striking given that the U.S. federal administration saw only a 7% increase in its public service workforce,[7] far below the 36% growth observed in Canada.
For many business owners, this stark divergence underscores a troubling reality: while the federal government has grown substantially, the economic dividends for citizens and entrepreneurs alike have remained modest.
Toward a more balanced model
Between 2013 and 2023, the federal government also consistently ran deficits, resulting in a ballooning national debt that continues to grow,[8] raising concerns about sustainability and the need for restraint.
When asked how the government should return to balanced budgets, small business owners overwhelmingly supported the adoption of fiscal restraint measures. Most (89%) favoured reducing the size and cost of the federal public service (Figure 6), while 87% supported the introduction of legislated spending limits outside of global crises. Additionally, 84% called for freezing the operating budgets of all federal departments as a necessary step toward restoring fiscal balance.
Figure 6
SME's supports on different policy recommendations
Source: CFIB, Your Voice survey, September 2024, n = 2,120.
Given rising fiscal pressures and widespread concern, it's essential to move beyond general warnings and push for clear, actionable steps to curb government spending—through stronger fiscal discipline, better accountability, and targeted reviews to ensure efficient use of taxpayer dollars.
In 2024 and 2025, various government departments and agencies reduced their number of employees, namely through attrition or by ending the contracts of term and casual employees. The government should leverage the next Fall Economic Statement and Budget build on recent restraint measures and to set the foundation for a more prudent spending approach. As part of these exercises, CFIB recommends that the federal government:
- Freeze the operating budgets of all departments at their current levels.
- Commit to undertaking meaningful internal and strategic reviews to actually reduce the size and cost of the federal public service.
- Avoid introducing new social programs or expanding existing ones (e.g., dental care, pharmacare, etc.), that would end up expanding the size of the public service.
- Commit to a fiscal anchor that will reduce the deficit and debt.
- Implement legislated spending limits for the government outside of a global crisis.
- Implement a clear path to balancing the budget with specific indicators to measure progress, aimed at breaking the cycle of deficit spending.
- Sell government assets (e.g., Crown corporations, land, buildings) where it makes sense.
[1] Government of Canada, Accessed in May 2025: https://www.canada.ca/en/treasury-board-secretariat/services/innovation/human-resources-statistics/population-federal-public-service-department.html
[2] Statistics Canada. Table 14-10-0064-01 Employee wages by industry, annual, authors’ calculations.
[3] Government of Canada, Annual Financial Reports of the Government of Canada, from the fiscal year 2012/2013 to the fiscal year 2022/2022, 2023. Accessed in May 2025: https://www.canada.ca/en/department-finance/services/publications/annual-financial-report.html
[4] Bomal, L. and Cruz, M., 2025. CANADA’S RED TAPE REPORT, The cost of regulation to small business, CFIB, 2015.
[5] CFIB, Your Voice Omnibus Survey - August 2024, August 8-21, 2024, n = 2,329.
[6] World Bank, accessed in May 2025: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?end=2023&locations=CA-US&name_desc=false&start=2013, authors’ calculations.
[7] U.S. Bureau of Labor Statistics via FRED, https://fred.stlouisfed.org/series/CES9091100001, authors' calculations.
[8] Government of Canada, Annual Financial Reports of the Government of Canada, from the fiscal year 2012/2013 to the fiscal year 2022/2022, 2023. Accessed in May 2025: https://www.canada.ca/en/department-finance/services/publications/annual-financial-report.html
