The federal government is set to spend $1 billion to adopt artificial intelligence technology in departments and services, as it remains on pace to cut the size of the public service by 10 per cent by 2029.
Budget 2026 provides an update on the new Digital Transformation Canada organization within the government to “lead the adoption of AI and other emerging technologies” across the public service.
“Digital Transformation Canada will bring together key digital groups across the public service, including Shared Services Canada and the Canadian Digital Service,” the budget said.
“It will also recruit private-sector experts on a short-term basis through a new fellowship program, bringing specialized skills into government while building expertise within the public service.”
The budget includes $1 billion over five years to establish a “Government Transformation Fund” to accelerate transformative information technology projects to “improve service delivery” and “help make the public service more productive.”
The government is also spending $17.6 million over five years to establish a “Fellowship Program” through the Build Canada Exchange to recruit technical experts, professionals, and academics to support priority projects.”
A new Digital Transformation Canada Act is set to be introduced, which will establish a “legislative framework for the delivery, governance, and management of digital and information technology services and capabilities across the government of Canada,” the budget said.
According to Budget 2026, GCtranslate, a new AI-powered tool to support the public service, has translated over 400 million words since June 2025. GCtranslate is accessible to more than 310,000 public servants in 70 federal departments.
The federal government’s investment in technology services comes one-year after plans were unveiled to reduce the size of the federal public service by 28,000 jobs by 2029.
The budget says the federal government is on track to reduce the size of the public service by 10 per cent by 2029 and does not outline any further job cuts across government departments.
$100 million a year is savings
The federal government expects to save $100 million a year through the early retirements of thousands of public servants, which will be reflected in department budgets starting next year.
Budget 2026 says the government will “align organization operating budgets” with personnel savings generated through the Early Retirement Incentive program.
Last November, the government announced the Comprehensive Expenditure Review to cut 28,000 jobs over four years, including 12,000 positions through attrition and early retirement.
As of Oct. 13, 9,694 applications have been approved for the Early Retirement Incentive (ERI) which allows employees to retire with an immediate pension based on years of service with no reduction for retiring early.
The budget says the government will see operating budget reductions of $400 million over four years, starting with the 2027-28 budget year, and $100 million a year after that.
“Reductions will be reflected in the 2027-28 main estimates,” the Budget said.
There were 332,000 federal public servants as of August 2026, down from 368,000 from its peak in 2023-24.
“They’re hitting faster than scheduled,” David Macdonald, senior economic with the Canadian Centre for Policy Alternatives, told CTV News Ottawa.
“In this budget, they’re estimating about 34,000 reduction net, but (Department of National Defence) is hiring. So, once you pull out the DND side of things now, we’re closer to 4,000 positions lost. And so, this is roughly what the government wanted to see.”
Federal unions had said they would be watching the budget “closely” for any deeper cuts to the “already stretched public service.” The Professional Institute of the Public Service of Canada says it wants the government’s spending plans to “match the public service capacity needed to deliver on them.”
The government also expects to save $305 million over five years on Canada Pension Plan employer contribution costs through the reductions in the public service.
Funding for departments
The federal government’s budget includes funding for some departments to support programs in 2027-28 and the years ahead.
Employment and Social Development Canada will receive $705 million over six years for the final phase of the Benefits Delivery Modernization program, including migrating the Canada Pension Plan onto a new platform.
The Canada Border Services Agency will receive $192.5 million over four years and $42.5 million ongoing to support “modernizing and stabilizing critical border technology infrastructure.”
