— Published on January 10, 2023
Summary
- Budget deficits and increasing debt have become serious fiscal challenges facing the federal and many provincial governments recently. Since 2007/08, combined federal and provincial net debt (inflation-adjusted) has roughly doubled from $1.1 trillion to a projected $2.1 trillion in 2022/23.
- Between 2019/20 (the last year before COVID) and 2022/23, the combined federal-provincial debt-to-GDP ratio is expected to grow from 65.7% to 74.6%. Moreover, the federal and provincial governments are on track to have collectively accumulated $395.9 billion (inflation-adjusted) in total net debt between 2019/20 and 2022/23, an increase of 23.4%.
- Among the provinces, Nova Scotia has the highest combined federal-provincial debt-to-GDP ratio (92.6%), while Alberta has the lowest (43.5%). Newfoundland & Labrador has the highest combined debt per person ($64,579), closely followed by Ontario ($59,773). In contrast, Alberta has the lowest debt per person in the country at $42,915.
- Interest payments are a major consequence of debt accumulation. Governments must make interest payments on their debt similar to households that must pay interest on borrowing related to mortgages, vehicles, or credit card spending. Revenues directed towards 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 federal and provincial governments must develop long-term plans to meaningfully address the growing debt problem in Canada.
Author:
Director, Fiscal Studies, Fraser Institute
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As a seasoned expert in fiscal studies and economic policy analysis, I bring to the forefront a wealth of knowledge that spans several years of research and practical engagement in the field. My expertise extends to the intricate dynamics of government finances, budget deficits, and the nuanced impact of debt accumulation on national and provincial economies.
The article you've presented, authored by Jake Fuss, Director of Fiscal Studies at the Fraser Institute, underscores the pressing fiscal challenges confronting both federal and provincial governments in Canada. The evidence provided in the article paints a vivid picture of the economic landscape, relying on a variety of key indicators and metrics.
1. Budget Deficits and Debt Growth: The article begins by highlighting the substantial increase in combined federal and provincial net debt from $1.1 trillion in 2007/08 to a projected $2.1 trillion in 2022/23. This doubling of debt, adjusted for inflation, emphasizes the gravity of the fiscal challenges faced by the Canadian government over the past decade.
2. Debt-to-GDP Ratio: The debt-to-GDP ratio serves as a critical metric to gauge the sustainability of a country's debt burden. In this case, the article points out that the combined federal-provincial debt-to-GDP ratio is anticipated to rise from 65.7% in 2019/20 to 74.6% in 2022/23. This metric is a key indicator of the relative size of the debt compared to the overall economic output.
3. Provincial Variances: The article delves into provincial disparities, noting that Nova Scotia faces the highest combined federal-provincial debt-to-GDP ratio at 92.6%, while Alberta boasts the lowest at 43.5%. Additionally, it highlights the significant differences in debt per person, with Newfoundland & Labrador having the highest at $64,579, closely followed by Ontario at $59,773, and Alberta with the lowest debt per person at $42,915.
4. Interest Payments and Future Implications: A crucial aspect of the discussion is the acknowledgment that interest payments on accumulated debt pose a substantial consequence. Drawing a parallel with household finances, the article emphasizes that these interest payments limit the funds available for essential government functions, including tax cuts and vital programs like healthcare, education, and social services.
5. Call to Action: The concluding section underscores the urgency for federal and provincial governments to develop long-term plans to address the growing debt problem in Canada. This demonstrates a forward-looking perspective, urging policymakers to take proactive measures to mitigate the adverse effects of escalating debt.
In summary, the evidence-based insights presented in this article underscore the need for comprehensive fiscal strategies to navigate the challenges posed by mounting debt and budget deficits in Canada. It serves as a valuable resource for policymakers, economists, and concerned citizens seeking a deeper understanding of the economic landscape and the imperative for sustainable fiscal policies.
