“In recent years, deficit spending and growing government debt have become a trend for many Canadian governments. Like households, governments are required to pay interest on their debt,” said the study, concluding the federal government spends about eight cents of every dollar in revenue on interest payments.
The report, “Federal and Provincial Debt Interest Costs for Canadians,” notes that this cost is more than the federal government has budgeted to spend on childcare benefits at $29.4 billion, and employment insurance benefit payments of $24.8 billion.
“Combined federal-provincial net debt is expected to reach a record high $2.1 trillion in 2022/23,” said the report, adding that it is expected this trend will continue for the foreseeable future, as some governments project they will continue running deficits in 2022/23.
Newfoundland and Labrador’s combined federal and provincial interest costs are projected to be the highest in the country at 10.5 percent, roughly $2,727 per person.
Ontario and Quebec are projected to tie for second place in interest spending, devoting about 7.3 percent of their provincial revenues toward interest payments.
Interest rates have also been rising, notes the report. If interest rates go up, borrowing costs will also increase, and governments with high debt levels will have to funnel more resources into paying down debt.
“Growing interest costs as a percentage of the economy could lead to a vicious cycle where more revenue is required to finance government debt, leaving less for the private sector. This could also raise the spectre of tax increases to finance the increased debt burden, which could undermine investor confidence,” said the report.
B.C. interest costs per person are at $1,398, while Alberta follows at $1,482. Quebec, Canada’s second most population-dense province, also has a high rate, coming in at $2,110 in interest costs per person.
“Total expenditures on interest costs for Albertans ($6.7 billion) is more than what the province will spend on physicians this year, and combined federal provincial interest costs for British Columbians ($7.4 billion) are nearly equivalent to what the province expects to spend on its social services this year,” said the report.
Meanwhile, Ontario residents are estimated to spend $27 billion on combined federal and provincial interest payments in the next year, nearly equivalent to what the province will spend on hospitals.
“Even before the COVID-19 pandemic and recession, governments across Canada and in Ottawa were racking up large debts, and this debt imposes real costs on Canadian taxpayers in the form of interest payments,” said Fuss.
The study notes that these interest payments are consuming resources that would otherwise go toward public priorities to help Canadian households. This may result in less revenue available in the future for tax relief or to support health care, education, and social services, suggests the report.
