The federal workforce has grown to an all-time high while delivering diminishing results. Let’s reform the system to deliver better services at lower costs.
Reducing headcount alone is not enough – rising per-employee compensation costs must also be addressed, or savings from workforce reductions will be eroded before they materialize.
We need to address the key structural problem. In 1995, Jean Chrétien balanced the budget in three years through a rigorous, outcomes-driven program review. Let’s exercise similar reform for greater accountability in public service to attract, retain, and reward top talent.
The Goal
To create a modern, effective, and accountable federal civil service that delivers better services at lower cost. Our goals:
- Within four years, reduce the federal civil service to 2015 levels. That means cutting roughly 110,000 employees and saving approximately $15 billion per year, about 19% of the 2025-26 expected deficit. The federal government’s current target of a roughly 40,000 employee reduction by 2028-29 is a step in the right direction, but should be treated as a minimum, not a final target.
- Pair headcount reductions with compensation and accountability reform to ensure savings are real. With per-employee costs rising on average 3.8% annually, we will have completely eroded savings from headcount cuts by 2030. With current plans, we will not deliver the fiscal outcomes Canadians need.
- Modernize government services by going AI-firstto improve productivity and efficiency.
- Mandate and publish department performance metrics and targets for all federal civil services. Use said metrics to determine performance-based pay and employment decisions.
Background and Motivation
Canadian public sector productivity has stagnated for decades, pulling down the growth of the economy. Canada’s federal workforce swelled to the largest number in history, consuming a disproportionate share of national resources while delivering diminishing results.
Stagnant Productivity
Since 2008, Canadian public sector productivity has flatlined as the civil service has added headcount without making the changes needed to make workers more effective. Increasing productivity—doing more with less—is the engine that drives all economic growth. To improve requires investments in new technologies, new ideas, and a consistent culture of high performance and accountability. Since the Financial Crisis, our private sector has made these investments, adopting new technologies and workforce practices to survive.
Overgrown Bureaucracy
Between 2015 and 2024-25, the federal civil service added more than 110,000 employees, reaching an all-time peak of approximately 448,000 FTEs. This increased the workforce-to-population ratio from 0.95% to 1.12%, the largest proportion since the stagflation of the 1970s. The Canada Revenue Agency (CRA) alone grew from 40,000 to over 59,000 employees since 2015—a 48% growth in headcount, or almost 3x the population growth over the same period.1 This is 1.5x the size of the UK tax authority and 2x the size of the Australian tax authority on a per capita basis.2
The government has acknowledged the problem. Budget 2025 launched the Comprehensive Expenditure Review aiming to reduce public service from roughly 370,000 to 330,000* by 2028–29. That’s a reduction of about 40,000, or 10%, from the peak.3 The 2026–27 Departmental Plans, released in March 2026, provide the most detailed look to date at where cuts will come: approximately 14,900 FTE positions are planned for elimination across 55 departments over three years, with the largest reductions at Public Services and Procurement Canada (~1,800), Employment and Social Development Canada (~1,500), Global Affairs (~1,200), Health Canada (~940), Statistics Canada (~900), and Environment and Climate Change Canada (~840).4
*Budget 2025 uses the Treasury Board’s headcount metric (TBS), which excludes FTEs of employers that are not the GoC (CRA, Parks Canada, and the Canadian Food Inspection Agency). For the sake of consistency & transparency in this memo, we use the PBO’s Personnel Expenditure Analysis Tool (PEAT) which does include these departments & project rates onto it.
However, many departments offered only vague commitments to “streamline” services or “modernize” operations, with heavy reliance on artificial intelligence as a catch-all justification for workforce reductions. The Parliamentary Budget Officer has noted a lack of detail on how cuts will affect services to Canadians.5
Rising Costs Despite Shrinking Headcount
Even as the workforce begins to shrink, the cost of the federal public service continues to rise. The Parliamentary Budget Officer (PBO) reported that personnel spending reached $71.4 billion in 2024–25. That’s an increase of 80% over a decade, up from $39.6 billion in 2015–16.6 Total compensation per full-time equivalent reached $143,271 in 2024–25, up 5.1% year-over-year. It marks the second consecutive year of historically high growth in per-employee spending.7
This pattern persisted into 2025–26. In the first five months of the fiscal year, the government spent $31.2 billion on salaries, bonuses, and other personnel costs. Spending rose 7.8% year-over-year even as the average number of full-time equivalents dropped from 358,000 to 346,000. The PBO observed that spending increases have been driven by higher expenses per FTE rather than staffing levels.8
The pre-pandemic historical average for growth in compensation per FTE was 2.0% per year (measured from 2007–08 to 2019–20). In recent years, that figure has run between 3.8% and 5.1%, driven by collective agreement settlements, step increases, pension contributions, and benefits growth. Not considering the Comprehensive Expenditure Review, the PBO projects personnel spending will rise to $76.2 billion by 2029–30, with overall compensation per FTE rising from about $143,271 to more than $172,000.
The numbers are straightforward: at current per-FTE costs of $143,000, cutting 15,000 positions saves approximately $2.1 billion. But a 3.8%** rise in per-FTE compensation across the remaining ~430,000 employees costs approximately $2.4 billion. The savings are wiped out entirely. Headcount reduction without compensation and structural reform will not deliver the fiscal outcomes Canada needs.
**The 3.8% annual growth rate for compensation per FTE reflects the PBO’s average from 2019-20 to 2024-2025. It does not take into consideration one-time compensation payments.
Government Projections demonstrated in this graph take into account the goals of Budget 2025’s Comprehensive Expenditure Review (CER).
Declining Service
Federal spending rose 32% since 2010, but citizen satisfaction is at a historic low. There have been significant issues with delays in immigration, benefits, and tax processing. Today only 16% of Canadians say they receive good value from government services.9
Poor Accountability
A lack of consequence has created a complacent culture. Firing for incompetence is virtually nonexistent— less than 0.5% of employees are terminated annually.10 Private sector rates are more than 20x greater. Low performers are not only less productive, they also drag down high performers, preventing our best public service employees from having the impact they could.
Why This Matters
High public service costs mean steeper taxes, less investment in innovation, a weaker economy, and a lower standard of living. If we do not reform the system, costs will rise, productivity will continue to stagnate, and essential services will continue to deteriorate. If instead we create a civil service with a culture of performance that rewards competence and results while also rapidly scaling adoption of AI to enhance productivity, our government could be as productive as the best private sector companies in the world, offering world-class service in a way that is smart and cost-effective.
Real-World Solutions
It is possible to create a productive, efficient civil service with a culture of performance. We have done it in the past and we can do it again.
Canada: In 1993, facing a large deficit and ballooning debt, the Liberal government under Jean Chrétien pushed to restore fiscal discipline. Every government service was subjected to rigorous evaluation based on six questions to determine if the service was necessary and how it could be delivered most efficiently. Departmental operating budgets were cut by 20% on average. From 1995 to 2000, federal spending as a share of GDP fell from 22% to 17%. By 2006, it had fallen to 15%, the lowest level since the 1940s.11 The Chrétien review succeeded because it was structural and outcomes-driven, not simply a headcount exercise.
_Fraser Institute, “Federal government increased number of public service employees by more than 40%.” _
Singapore: In Singapore the public sector has an essential mandate to attract the best talent in the country and run the government efficiently. The Public Service Division benchmarks salaries against the private sector to ensure competitiveness. The Civil Service Performance Bonus ties pay to economic growth and individual performance. Additionally, Singapore enforces strict accountability with structured exit policies, allowing for easier termination of underperforming employees. Canada must adopt a similar, merit-driven culture in government.
Denmark: Denmark made digital the default for all government services.12 Processing times fell 30%. Annual savings reached €296 million.14 The country now has the highest rate of digital government service usage in the EU at 98.5%.15 It has topped the UN E-Government Survey every cycle since 2018.
United Kingdom: The United Kingdom’s Delivery Unit measured ministers on whether outcomes moved, not if processes were followed. Patients waiting more than a year for surgery fell from over 40,000 to under 10,000 in two years.17 The government axed it in 2010. The minister who made that decision later called it a terrible mistake.19
Private sector: Private sector firms need to continuously invest in productivity improvements or risk bankruptcy. Companies that do not create a culture of performance, adopt new technologies, and streamline operations collapse under the weight of inefficiency. The government is not a company, but we must find ways to create similar incentives for our civil service. Our agencies cannot be considered “too big to fail.”
What Needs To Be Done
We are proposing comprehensive legal and structural reforms to create a leaner, more accountable, and results-driven civil service. The pace currently set by the federal government is directionally sound but will not get us to these targets
- Set ambitious targets: Introduce a performance and results system to set and cascade clear, ambitious, aligned, and measurable targets for service levels and costs in all departments.
- Improve accountability: Currently, only executives are judged based on service performance, and >97% meet their expectations and are given their at-risk pay or more. Enhance the current performance system to include all civil service employees. Reward high performers with merit-based pay and career advancement based on ambitious targets.
- Review our services: Create a tough review process to ask if a program serves the necessary public interest, is affordable, and fits the federal mandate. If the answer is no, eliminate the program or collapse the objectives into another.
- Make government AI-first: mandate AI-first delivery across federal services — starting with CRA, IRCC, and ESDC — to cut processing times in half, save $10B annually, and build a domestic AI industry by buying Canadian.
- Reset to a new baseline: Return to a reasonable size for the civil service through a combination of a hiring freeze, buyouts, transition support and early retirement (funded by a Pension Fund surplus) to encourage voluntary departures That follows the approach that Jean Chrétien used in the 1990s.
- Streamline dismissals: Amend the Financial Administration Act to allow termination after two consecutive quarters of unsatisfactory performance.
- Address compensation growth: Pair headcount targets with structural reforms to per-employee costs to ensure that workforce reductions translate into real fiscal savings. That should include collective bargaining frameworks, executive bonus structures, and benefits design.
How To Do It
To achieve these reforms:
- Clear targets: Within four years, the federal public service will be reduced to 0.95% of the workforce.
- New oversight mechanisms: Establish an independent time-bounded agency to audit departmental efficiency and effectiveness, and propose cost-saving measures.***
- Tracking and transparency: Create modern dashboards to publicly share federal and departmental progress against workforce efficiency and core service metrics.
- AI mandates: Reform procurement rules to prioritize Canadian AI companies, hire departmental CTOs to lead implementation, and launch 6-month pilot programs at CRA, IRCC, and ESDC to prove it works before scaling government-wide.
- Issue immediate changes: Issue Orders in Council to freeze hiring (with exception for necessary cases), start a program review, offer buyouts, and strengthen mechanisms for dismissal.
- Legal amendments: Modify the Public Service Employment Act and the Financial Administration Act to streamline hiring, firing, and performance tracking.
Common Questions
How will reducing the federal civil service by around 110,000 employees in just four years avoid causing a loss of institutional knowledge and a “brain drain”?
We are recommending a strategic combination of hiring freezes, voluntary buyouts, and early retirements. Not mass layoffs. This allows high-performing staff to remain while underperformers opt out or retire, preserving institutional knowledge. Meanwhile, by rewarding strong performers we will attract and retain top talent, reducing risk of a brain drain.
Will a focus on performance-based metrics lead to short-term thinking and incentivize “gaming” the system instead of delivering genuine long-term improvements?
All performance metrics will be aligned with broader, long-term outcomes so there is less room to “game” short-term numbers. This will include faster service delivery, cost efficiency, and citizen satisfaction. Regular audits and publicly available dashboards discourage manipulation. Aligning targets from top to bottom ensures that everyone’s short-term goals support long-term service improvements.
Will these reforms lead to unfair firing of public servants?
The focus of the reforms is to develop clear, transparent performance standards. The emphasis on accountability and clear expectations helps high performers and ensures consistent due process. This protects employee rights while enabling appropriate dismissals for underperforming staff.
Won’t adding oversight agencies just increase bureaucracy instead of reducing it?
Our recommended review process is time-bounded with the aim of streamlining existing processes rather than adding permanent layers. Once processes are improved and departments are right-sized, the review group will be phased out.
The government is already planning to cut 40,000 jobs—isn’t that enough?
The direction is right, and the government deserves credit for acknowledging the problem. But headcount targets alone do not solve the structural challenge. Per-employee compensation has been rising at 4–5% annually, which means a significant share of the savings from workforce reductions is consumed by rising costs for remaining employees. Without pairing headcount cuts with compensation reform, accountability measures, and a rigorous program review, the underlying cost and performance problems will persist.
Conclusion
Canada’s federal government has taken the first steps toward public service reform—acknowledging the need for a leaner workforce and launching a Comprehensive Expenditure Review. These are welcome moves. But the pace currently set, and the tools being deployed, are not yet commensurate with the scale of the challenge. Rising per-employee costs threaten to erode headcount savings. Vague plans to “modernize” are no substitute for structural accountability reform. And Canadians continue to receive declining service from a public sector that costs more every year.
We must go further. By rewarding performance, cutting waste, addressing compensation growth, and increasing accountability, taxpayers will save billions, businesses will thrive under a more responsive system, and we will develop a government that prizes excellence and works for Canadians. In five years, Canada’s government can deliver better services with fewer resources and build a culture of performance that ensures Canadian prosperity.
*** Core Service Metrics. The Federal Civil Service should be measured and held accountable just like any service provider. We should have a set of core service metrics including: Passport Issuance Turnaround Time, Immigration Processing Timelines, Employment Insurance (EI) Claims Processing Speed, Tax Filing and Refund Turnaround, Call Centre Responsiveness, Benefits Payment Accuracy Rate, User Satisfaction, and more—reported quarterly or better. These should be used to measure civil service effectiveness and be available to the public through easily accessible public dashboards.
