Government debt expected to rise above $2 trillion in 2023

By Brett Lubkiwski

Canada’s federal-provincial government debt is projected to reach more than $2 trillion in 2023, according to a recent study.

According to the study by the Fraser Institute, a Canadian public policy think tank, the country’s debt has nearly doubled since 2007, when the debt was at $1.1 trillion (adjusted for inflation).

The largest increase to the debt came at the beginning of the COVID-19 pandemic, which saw the debt increase just under $400 billion between 2019-20 and 2022-23.

Jake Fuss, associate director of fiscal studies at the Fraser Institute, spoke to Gormley on Wednesday to share details of the report.

“It didn’t matter what political party or what province you were in, you were seeing an increase in debt at both the provincial and federal level,” Fuss said.

One of the biggest consequences of the increasing debt comes in the form of interest payments, Fuss explained.

“The federal and provincial governments are currently spending roughly $68 billion annually on interest payments,” Fuss said.

“That leaves fewer resources for tax cuts, or government programs like health care, education or social services.”

Another consequence of rising interest rates and government debt is the impact they can have on future generations, Fuss said, as they may be the ones paying back the debt through measures such as higher taxes down the road.

The Bank of Canada raising its interest rate also is adding to the issue, Fuss said, by making it more expensive for the government to borrow money.

“We’ve seen – even just at the federal level – a pretty significant increase in interest costs. They’re rising quite rapidly, and they’re projected to increase in the next few years as well,” said Fuss.

Newfoundland and Labrador has the highest combined debt per person of any province, carrying almost $65,000 of total government debt per person. Ontario is second at just under $60,000 per person.

“The western provinces generally have lower levels of government debt,” Fuss said.

“Saskatchewan, British Columbia and Alberta are the three provinces with the lowest amount of government debt per person, but their amounts have increased over the last 15 years.”

Saskatchewan’s net debt per person is currently at $46,180, which is third among the provinces. Alberta is the lowest at $42,915.

Even though Saskatchewan has one of the lowest debt ratios in the country, Fuss said that figure has increased by 90 per cent since 2007.

Fuss told Gormley that the federal and provincial governments will need to create some long-term goals in their yearly budgets if they want to address the growing debt problem in Canada.

“Some of the governments recently are running surpluses, but almost all of this is due to the rebound in the economy, high inflation and high oil and gas prices. The federal and provincial governments have to understand that they’re going to have to make difficult decisions in a post-COVID world, and they can’t continue running deficits in the coming years,” said Fuss.

If governments do not take those necessary steps, Fuss said Canada could find itself in a situation where governments will be forced to make serious cuts to spending.