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"Where do my taxes go?" is one of those questions that feels unanswerable — the numbers are so large they stop meaning anything. But the federal budget isn't actually that complicated at the top level. A handful of categories account for most of the roughly $586 billion Ottawa plans to spend in 2025–26, and once you see them, the political debates make a lot more sense. All figures below are approximate and drawn from federal Budget 2025 and related estimates.
1. Elderly benefits — about $85 billion
The single largest federal program is support for seniors: Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). Roughly one in every six or seven federal dollars goes here, and this category is growing faster than almost any other as the population ages. That growth is the backdrop to recurring debates about the OAS eligibility age and clawback thresholds.
2. Transfers to provinces — health and more
Ottawa sends large cash transfers to the provinces, the biggest being the Canada Health Transfer at about $55 billion. Health care is delivered by the provinces, but a substantial chunk of the money originates federally. Add the Canada Social Transfer and equalization, and transfers to other governments become one of the largest spending blocks overall.
3. Interest on the national debt — about $49 billion
Because the federal government carries a large accumulated debt, it pays tens of billions each year just in interest — around $49 billion in 2025–26. This is money that funds no program at all; it's the cost of past deficits. When interest rates rise, this line grows, which is why debt-servicing costs feature heavily in fiscal debates.
4. National defence — about $34 billion
Defence spending covers the Canadian Armed Forces, procurement (like the F-35 fighter jet program), and Canada's NATO commitments. It's a large number in absolute terms but a smaller share of the budget than seniors' benefits or health transfers — a fact that surprises many people given how much attention military spending receives.
5. Everything else
The remainder funds a very long list: the Canada Child Benefit and other support for families, employment insurance, Indigenous services and reconciliation, the RCMP, the courts and prisons, immigration and border services, scientific research, foreign aid, the CBC, national parks, and the entire federal public service. Individually, the specific programs people argue about are usually a small slice of the whole.
The big picture
Step back and a clear pattern emerges: the majority of federal spending is transfers — to seniors, to families, and to provincial governments — plus interest on the debt. The "government programs" people often picture when they imagine wasteful spending are real, but they're a minority of the budget. Understanding that shape is the first step to having an informed opinion about taxes and public finance.
It's also worth remembering that the federal government spends more than it collects in most years, covering the gap by borrowing. That's why total spending (~$586 billion) exceeds total revenue (~$508 billion) — and why debt interest is such a large line.
Frequently asked questions
What is the biggest single federal expense? Benefits for seniors — Old Age Security and the Guaranteed Income Supplement — at roughly $85 billion a year, and growing.
How much does Canada spend on interest? About $49 billion in 2025–26, purely to service the accumulated national debt.
Does the federal government pay for health care? It funds a large share through the Canada Health Transfer (~$55 billion), but the provinces deliver and administer health services.