A recently released report states that Canadians will spend an average of over $1,750 per person on government debt interest this year, amounting to nearly $82 billion nationwide. This enormous debt, which is shared between the provinces and the federal government, comes as interest rates have been increasing, as highlighted in a new study published by the Fraser Institute.
The report also warns that should interest rates continue to rise, the cost of borrowing would also increase over time. This would result in even more resources being directed to interest payments, especially for governments with high debt levels. The federal government’s portion of the debt for this year totals 10.2 percent of federal revenues, and Ottawa currently spends more than 10 cents of every tax dollar on interest payments.
Fraser Institute’s director of fiscal studies, Jake Fuss, emphasized that interest must be paid on government debt, and the more money governments spend on interest payments, the fewer resources will be available for services and programs important to Canadians.
The report also provides a breakdown of the combined debt between provinces and the federal government. Newfoundland and Labrador has the highest debt-to-revenue ratio, spending 10.6 percent of its revenues on interest payments. The study notes significant increases in Canada’s combined public debt since the 2008-2009 recession, with Ottawa running deficits and resulting in an 85 percent increase in Canada’s combined public debt.
The report highlights the serious fiscal challenges the combined federal and provincial debt will create for governments in the years ahead. It recommends that Canadians understand the magnitude of the country’s government debt as deficits and debt today will lead to higher taxes in the future.