The Fraser Institute is sounding the alarm about debt and deficits in Canada.
According to a new report, the combined net debt of Canada’s federal and provincial governments has nearly doubled since 2007-08, from $1.21 trillion to $2.30 trillion (in 2024 constant dollars) as of the end of fiscal year 2024-25.
Over the past five years alone, the anticipated combined federal-provincial debt-to-GDP ratio climbed from 65.9 per cent to 74.8 per cent. As well, governments at both levels were on track to have added $493.2 billion in net debt to Canada’s bottom line over the past five years.
The federal government’s deficit spending is the leading cause of rising debt in Canada, but the vast majority of Canada’s provincial governments have also been running deficits year in and year out.
When combining federal and provincial debt together and breaking the results down by province, the Fraser Institute study finds that Newfoundland and Labrador has the highest debt-to-GDP ratio at 88.4 per cent, or $68,861. On the other hand, Alberta has the lowest debt burden per person in Canada, coming in at $40,939. Ontario is somewhat at the middle of the pack at $60,508.
But in terms of changing net debt over the past 15 years, Ontario is one of the worst offenders. Ontario’s net debt has increased by 85.4 per cent since 2007-08. In that entire period, the province’s budget has only been balanced once. Debt soared under Liberal premiers Dalton McGuinty and Kathleen Wynne, but that trend has only continued under Progressive Conservative Premier Doug Ford.
As the Fraser Institute reminds readers, the consequence of all this new debt is debt interest payments. Governments, and therefore taxpayers, have to make debt interest payments the same way households do when they borrow money to buy things like cars, homes, or rack up credit card bills.
For example, Ontario now spends more on debt interest payments than it does on post-secondary education. The federal government now spends more on debt interest payments than it does on healthcare, and it spends more on debt interest payments than every penny brought in through the GST.
All the extra money governments are now forced to spend on interest payments means less money available for tax cuts or service improvements. That’s the ultimate consequence of governments failing to make tough choices, running big deficits, and passing the burden along to the next generation.
It didn’t used to be this way. There was a consensus in the late 1990s until about 2007 that deficit spending was bad and that balanced budgets and paying down debt was good. Both at the federal level and across the country in provincial capitals, governments made tough choices to ensure the long-term fiscal health of the country. This approach seems to have disappeared entirely from the thinking of policymakers everywhere in Canada.
Where is most of the debt concentrated? Canada’s provincial governments hold roughly 39 per cent of Canada’s debt burden, while the federal government has 61 per cent. That’s largely unchanged since 2007-08, suggesting governments at both levels have been piling on debt at a relatively similar overall scale.
It’s time for Canada’s politicians to buckle up and start to make tough choices. Canadians cannot afford to see Canada’s debt burden increase over the next 15 years at a similar pace as the past 15 years. And yet, sadly, all of Canada’s governments, other than Saskatchewan, plan to run operating deficits in 2025-26. Some of the heaviest hitters, like the federal government, Quebec, B.C., and Ontario, and have virtually no plans to balance the books anytime soon.
Without a significant course correction, Canada could be sleepwalking toward a debt crisis in the medium term, which will lead to painful tax hikes and a slash and burn approach to spending. If we want to avoid that reality, the time to get responsible with Canada’s finances is now.
Jay Goldberg is the Canadian Affairs Manager at the Consumer Choice Center. He previously served as the Ontario Director at the Canadian Taxpayers Federation and a policy fellow at the Munk School of Public Policy and Global Affairs. Jay holds a Ph.D. in Political Science from the University of Toronto.
