Combined Federal-Provincial Debt Projected to Hit $2.18 Trillion This Year

Canadian dollars are pictured in Vancouver on Sept. 22, 2011. Jonathan Hayward/The Canadian Press

Combined federal and provincial debt in Canada has nearly doubled in the past 16 years, going from $1.18 trillion in the 2007-2008 fiscal year to a projected $2.18 trillion for 2024, according to a newly released report.

Although there was a significant rise in debt levels in 2020 associated with pandemic spending, debt has long been a problem in Canada, said the report from the Fraser Institute. Ottawa has chosen to run deficits since the onset of the global financial crisis of 2007-2008, resulting in an 85 percent increase in Canada’s combined public debt.

The combined federal and provincial debt will create “serious fiscal challenges for Ottawa and provincial governments in the years ahead,” Fraser Institute director of fiscal studies Jake Fuss said in a press release on the report. “It’s important for Canadians to understand the magnitude of the country’s combined government debt because deficits and debt today result in higher taxes in the future.”

Interest payments are one of the biggest issues facing Canada and its provinces, the report said, noting that governments must make interest payments on their debt similar to households that are paying down a mortgage.

“Revenues directed toward interest payments mean that in the future there will be less money available for tax cuts or government programs such as health care, education, and social services,” the report’s authors wrote.

Federal and Provincial Debt

Over the past 16 years, federal net debt, adjusted to 2023 inflation levels, has grown by $603.6 billion—an 83.1 percent increase. The amount is a significant departure from the period between 1996/97 and 2007/08 when the federal government reduced its net debt by $348.1 billion.

“In the past 16 years the federal government has accumulated nearly double the amount of debt that it repaid in the mid-1990s to late-2000s,” the authors wrote.

The rise in government debt is not limited to only one level of government, however. Real debt levels have risen federally and in every province between 2007 and this year.

The combined federal-provincial debt-to-GDP ratio is expected to grow from 65.7 percent to 76.2 percent between 2019-2020, the last fiscal year prior to COVID, and 2023-2024, the report found. In that same time span, the federal and provincial governments are also on track to collectively accumulate $425.8 billion in total net debt, an increase of 24.3 percent.

Provincial Debt

Nova Scotia has the highest combined federal-provincial debt-to-GDP ratio, sitting at 96.8 percent, while Alberta has the lowest at 42.9 percent.

The federal-provincial debt-to-GDP ratio compares the combined public debt of the country and each province—what they owe together—to its gross domestic product (GDP).

Provincially, Newfoundland and Labrador has the highest debt to-GDP ratio at 41.6 percent followed by Quebec at 39.2 percent, and Ontario at 38.7 percent. Quebec, however, is one of only three provinces to decrease its debt burden relative to the economy since the 2007/08 fiscal year. The two other provinces to decrease their debt burden relative to the economy are Nova Scotia and Prince Edward Island.

Another way to determine the level of government debt, the report said, is to measure it per person.

“Debt per person is important because it demonstrates just how much government debt, on average, each Canadian citizen is responsible for repaying,” the report said, adding that the total federal net debt per person has risen 52.6 percent in the past 16 years and is expected to reach $33,682 this year.

Newfoundland and Labrador has the highest combined federal and provincial debt per person at $67,471, followed by Ontario, whose residents average $60,609 per person. Alberta has the lowest combined debt per person in the country at $42,293.

“Various studies and reports have found that there is a negative relationship between government debt and economic growth,” the report concludes. “Since we are now past the COVID-19 pandemic, the federal and provincial governments must develop long-term plans to meaningfully address the problem of government debt in Canada.”