The Future is Now: Innovation in Budget 2025

Overall impressions

The innovation agenda in the 2025 budget is incremental at most, leveraging and rebranding programs such as the Venture “and Growth” Capital Catalyst Initiative and Strategic Response Fund, as well as extending funding for existing supports. Though it introduces new strategic vehicles for investment in key emerging technology sectors, like quantum, AI, and life sciences, it lacks an overall strategic direction to nurture homegrown firms and ecosystems. While it is promising to see the extension of strategic industrial support funding, such as protecting IP and sovereign funds in critical minerals, energy, manufacturing, AI, and quantum, the budget’s most impactful innovation boosting activity will be driven by productivity-enhancing tax write-offs such as the Accelerated Investment Incentive and Productivity Super-Deduction. Though the budget’s innovation agenda is a step forward, it falls short of the transformative leap required to close the gap in Canada’s lagging technology adoption and patent activity.

Artificial intelligence

Compute and data centre infrastructure is essential for Canada to remain competitive in the AI space. With an investment of $925.6 million over five years, the Sovereign AI Cloud is a welcome addition to the ongoing sovereign compute strategy, focusing on industries with highly sensitive data such as healthcare, government services, and public finances, and will be crucial to accelerating innovation and data sovereignty in these sectors. However, the majority of these funds ($800 million) were provisioned in the 2024 budget. The Canadian Infrastructure Bank mandate will now include investments in AI infrastructure, bolstering public co-investment in critical digital infrastructure projects. A more substantive focus on domestic cloud provider investment and public procurement would have been a notable addition to better address data sovereignty.

The Canadian government has made it clear that it intends to follow through on its promise to unlock AI potential in the public sector, as AI adoption and development of made-in-Canada AI systems and tools will be a core component of public sector services. Shared Services Canada, the Department of Justice, and Transport Canada are implementing AI and automation to streamline internal operations, reduce costs, and improve service delivery. Additionally, the proposed Artificial Intelligence and Technology Measurement Program (TechStat) ($25M) aims to measure the use of AI, its impact on Canadian society, the labour force, and the economy, and is funded from existing resources. Given that AI adoption among Canadian firms has increased, and jobs requiring AI-related skills are continuing to rise, we commend this effort to understand use cases of AI and its impact on the economy.

Quantum technologies

The budget also allocates $334.3 million over five years starting in 2025–26, to ISED, NRC, and the National Science and Engineering Research Council (NSERC) to help anchor quantum companies. It will help maintain Canada’s early research lead, positioning quantum innovation to both defence and industrial applications. We think this represents a timely and positive step, especially when considered alongside the inclusion of quantum technologies under both the emerging technology support stream and as a part of the Defence Industrial Strategy.

Critical minerals and sustainability

Canada’s clean energy and vast primary resources are essential to unlocking inclusive and sustainable economic prosperity. Consequently, we welcome the broad Critical Minerals Sovereign Fund ($2B), and focus on helping critical minerals projects (e.g. Ontario’s Ring of Fire, British Columbia’s Golden Triangle) expedite the investment process through the First and Last Mile Fund ($371.8 million). The expanded Critical Mineral Exploration Tax Credit (CMETC) includes eligibility for twelve additional critical minerals and allowance of flow through shares.

The Clean Economy Investment tax credits for hydrogen (15 to 40 per cent tax credit), carbon capture (37.5–60 per cent tax credit), clean tech (30 per cent tax credit), and manufacturing will also help to incentivize sustainability. Finally, the 2025 budget proposes reinstating accelerated capital cost allowances (CCA) for LNG equipment and low-carbon LNG facilities.

Innovation Funding

Coordinated public-private investment remains central to advancing Canada’s economic and innovation priorities. A flagship initiative of the 2025 budget is the $1 billion Venture and Growth Capital Catalyst Initiative, delivered through the Business Development Bank of Canada over three years beginning in 2026–27. Designed to leverage pension and institutional investors, while also supporting new and emerging fund managers and priority sectors, the initiative represents a constructive start, particularly for the life-sciences sector, where long development cycles and high capital needs have hindered growth. Our innovation leadership has echoed this recommendation as Canada faces a structural gap in late-stage financing.

The Strategic Innovation Fund, supporting the steel industry’s transition toward new lines of business and strengthening domestic supply chains announced in July 2025, is now included in the Strategic Response Fund. The most notable addition is the re-introduction of the Accelerated Investment Incentive & Productivity Super-Deduction, which has the potential to address a decade of declining capital investment to labour ratios in Canada. Additionally, the SR&ED tax funding reform, particularly the inclusion of capital expenditures for claimants, will enable our innovative businesses to expand their research and development (R&D) operations.

Budget 2025 includes measures to provide clearer pathways for institutional and venture investors to participate in Canada’s infrastructure, housing, and clean-technology growth. For example: the Major Projects Office (MPO) will align financing from the private sector and Crown corporations, such as the Canada Infrastructure Bank, Canada Growth Fund, and Canada Indigenous Loan Guarantee Corporation, to attract domestic and global investors under a unified strategic framework. The Build Canada Homes program commits $13 billion over five years (beginning in 2025–26) to leverage public lands and flexible incentives, drawing private builders and lenders into innovative and scalable housing production. The Indigenous Loan Guarantee Program, now expanded from $5 billion to $10 billion will enhance the inclusivity and private equity participation by enabling Indigenous ownership. Complementing these efforts, a made-in-Canada sustainable-investment taxonomy and a Sustainable Bond Framework for green and transition bonds aim to lower financing costs and mobilize ESG-aligned investors.

Finally, we welcome the $180 million dollar extension of IP program funding to ensure Canada’s innovation ecosystem is equipped to protect Canadian intellectual property and support Canadian SMEs to commercialize and leverage their intangible assets to compete in the global marketplace. However, the Budget’s lack of extensive reform on IP commercialization, as Canada lags its G7 peers in patent activity, as well as specific measures to address small-to-medium enterprise technology adoption, is a notable challenge for Canadian entrepreneurs.