Canadians will spend an estimated $68.6 billion this year paying interest on the country’s combined federal and provincial government debt of $2.1 trillion, more than the cost of providing major social programs and public services, according to a new study by the Fraser Institute.
The federal share of $34.7 billion in payments on the federal debt alone equals 7.8% of all federal revenues, and is more than the Trudeau government expects to spend on its national child care program ($29.4 billion) or employment insurance benefits ($24.8 billion).
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Total interest payments on provincial debt of $33.9 billion this year, exceeds the cost of many provincial government programs and services.
The report, “Federal and Provincial Debt-Interest Costs for Canadians, 2023 Edition” authored by economist Jake Fuss, says the per capita cost for Canadians paying interest on total government debt — which doesn’t decrease the debt — depends on the province in which they live.
Residents of Newfoundland and Labrador will pay the highest per capita debt interest costs this year of $2,727, followed by Quebec ($2,110); Ontario ($1,790); P.E.I. ($1,736); Manitoba ($1,690); New Brunswick ($1,635); Saskatchewan ($1,581); Nova Scotia ($1,553); Alberta ($1,482) and B.C. ($1,398).
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The $27 billion Ontario residents will pay in combined interest payments on federal and provincial debt this year is almost as much as the $30.4 billion the province will spend on hospitals.
Paying interest on Ontario’s provincial debt alone — $13.6 billion — will cost more than what the province pays for post-secondary education ($10.8 billion).
The $18.3 billion Quebec residents will pay in interest on the combined federal and provincial debt in their province this year is almost as much as the $19.1 billion the province will spend on education.
The $10.5 billion Quebec residents will pay in interest on provincial debt alone, is more than the $10 billion the province will spend paying physicians.
In B.C., residents will pay $7.4 billion in interest on their combined federal and provincial debt, almost as much as the $7.9 billion the province will spend on social services.
The $2.7 billion B.C. residents will pay in interest on their province’s debt alone, will cost more than the $2.4 the province spends on transportation.
In Alberta, residents will pay $6.7 billion in interest on their combined federal and provincial debt, more than the $5.6 billion the province spends compensating physicians.
The $2.7 billion Albertans will pay in interest on their province’s debt alone, is almost double the $1.5 billion the province will spend on its justice system.
While government debt has increased in the aftermath of the COVID-19 pandemic, the study notes rising government debt levels have been a fixture of the economy for years.
In 2019, the year before the pandemic hit, Canadians were paying an estimated $54.8 billion in interest on total federal and provincial debt.
The study notes debt interest payments up to now have been cushioned by historically low interest rates, which have risen dramatically to combat inflation in less than a year.
The Bank of Canada has increased its benchmark interest rate eight times from 0.25% in March, 2022 to 4.50% last month, the highest rate since 2007.
Higher interest rates mean that governments have to pay more for the money they borrow over time.
The study warns higher interest rates on government borrowing leads to higher taxes and reduced public services, because money has to be shifted away from them to pay interest on debt.
