Much government spending, especially federal spending, is in the form of transfers, such as equalization payments and other block payments to the provinces, EI, CPP, OAS, child tax credits, etc. These payments are mostly computerized; there is a VERY large amount of money flowing per government employee managing the flow.

At the provincial level, the biggest single item is payments to doctors, who are private contractors and not on the public payroll. You might be right about 40% of the labour force receiving government money, but that does not mean 40% on the public payroll.