The Cost of Government Debt in Canada

A major theme of this year’s federal and various provincial budgets is continuing deficit spending and growing government debt. The result of recent deficits and debt accumulation is that the combined federal and provincial net debt has increased from $823 billion in 2007/08 to over $1.2 trillion (or $34,905 for every man, woman, and child living in Canada) in 2013/14. This type of debt accumulation has costs. One major consequence is that governments must make interest payments on their debt similar to households who pay interest on borrowing related to mortgages, vehicles, or credit card spending. Spending on interest payments consumes government revenues and leaves less money available for other important priorities such as spending on health care and education or tax relief. Canadian governments (including local gov-ernments) collectively spent an estimated $61.7 billion on interest payments in 2013/14. To put that in perspective, it is more than Canada’s public spending on primary and secondary education ($61.0 billion, as of 2011/12, the last year for which we have finalized data), or more than the three major federal-to-provincial government transfer programs comprising Equalization, the Canada Health Transfer and Canada Social Transfer ($58.6 billion).