Canada's Budget 2026 sets aside about $1 billion to modernise government IT, with a new agency leading AI adoption

Canada's federal budget, tabled on November 5, puts artificial intelligence at the centre of its plan to make government cheaper and faster. Chapter 6, titled "A more efficient government", announces a Government Transformation Fund worth approximately $1 billion over five years, on a cash basis, starting in 2026-27. The money is earmarked for information technology projects intended to improve service delivery and public service productivity.

A new organisation for AI in government

The budget formalises Digital Transformation Canada, the body that grew out of the Office of Digital Transformation announced in Budget 2025. It is described as the federal organisation that will lead the adoption of AI and other emerging technologies across the public service. It will absorb existing digital units, including Shared Services Canada and the Canadian Digital Service, and is tasked with building, testing and scaling government-wide tools that cut duplication and costs, improve services and strengthen digital sovereignty. The government plans a Digital Transformation Canada Act to give digital and IT governance a legal framework, and will spend $17.6 million over five years, plus $4.2 million in 2031-32, on a fellowship programme run through the Build Canada Exchange to bring in outside experts for short stints.

The budget points to tools already in use. The AI translation service GCtranslate has handled more than 400 million words and is used by over 70 departments and agencies, while the internal assistant CANChat processes more than 26,000 conversations a month.

Fewer public servants

The spending comes alongside a smaller workforce. According to Treasury Board figures cited in the budget, the public service fell from a peak of about 368,000 employees in 2023-24 to roughly 332,000 in August 2026, close to the 10% reduction targeted for 2028-29. CP24 reports that the budget outlines no further cuts beyond that plan. Economist David Macdonald of the Canadian Centre for Policy Alternatives told the outlet the reductions are arriving faster than scheduled, and federal unions said they were watching for deeper cuts.

Broader AI spending

Outside government operations, the Budget in Brief lists $2.7 billion, on a cash basis, for the AI Strategy and quantum investments, linked to up to 90,000 AI-related jobs and work placements for young people over five years. The document does not say how much of that is new money. The budget also does not specify how the $1 billion fund will be split between AI and other IT projects, or how the government will measure the productivity gains it expects.