Canadians are carrying a historic amount of debt.
And it’s not just their credit cards and mortgages that are weighing on their wallets and the economy. Combined federal and provincial debt in this country will top $1.3 trillion this year, according to a new Fraser Institute report out Tuesday.
“It’s not a trivial amount,” said Charles Lammam, one of the report’s co-authors of the $450 billion in government debt that’s accrued since the recession. “There’s short and long-term consequences.”
In the short term, massive interest payments on debt gobble up revenues that could be better spent, Lammam said. Local, provincial and federal governments pay more than $60 billion a year to service their debt, money that could be better spent on services. Over the long-term, a growing body of research suggest heavy government debt loads dampen economic growth.
There are economic arguments for some national and subnational debt, but it needs to be balanced against growth That’s why the 64.8 percent net debt-to-GDP ratio across the country is so concerning for experts.
And governments aren’t slowing down the increase in their debt loads: Ontario will soon owe more than $300 billion; the new federal government expects to tack on billions more in infrastructure costs. Some economists argue that now, with interest rates at historic lows, is the best time to invest.
But what happens when interest rates rise and those debt payments eat up even more of a government’s annual budget.
“The amount of government debt we have in this country does carry costs,” Lammam said.
For context, here’s how much various governments pay in interest payments each year versus how it stacks up to other expenses or revenues in the provincial treasury.
- The federal government expects to spend $25.9 billion this fiscal year to service its debt this year — government speak for making interest payments. That’s more than the $23.9 billion it spent last year on national defence. (Current government estimates for 2015/16 allocate less than $19 billion to the ministry).
- Ontario spends about $11.3 billion a year to service its debt — or more than it its entire welfare system costs. The ministry of community and social services runs on $11.1 billion a year.
- The Quebec government spends $10.3 billion in interest payments each year, almost double the $5.3 billion it spends on post-secondary education and more than the $9.3 billion it uses to directly support families and individuals
- British Columbia doles out $2.5 billion to service its debt, essentially double the $1.26 billion it spends each year on childcare.
- Nova Scotia’s annual interest payment tops $870 million — more than three times the $223.5 million in revenue the provincial liquor corporation rakes in.
- Newfoundland spends almost 13 per cent of its revenue just to maintain its debt load. That $888 million is $2 million more than it spends annually to run its primary and secondary schools.
