Canadians hit with high costs paying interest on government debt
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Canadians will spend an estimated $68.6 billion this year paying interest on the country’s combined federal and provincial debt of $2.1 trillion, more than that, according to a new study by the Fraser Institute Cost of delivering essential social programs and public services.
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The federal portion of $34.7 billion in federal debt payments alone represents 7.8% of all federal revenue and is more than the Trudeau administration expects for its national child care program ($29.4 billion) or employment insurance benefits ( 24.8 billion US dollars).
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Total interest payments on provincial debt of $33.9 billion this year exceed the cost of many provincial government programs and services.
The Federal and Provincial Debt-Interest Costs for Canadians, 2023 Edition report, authored by economist Jake Fuss, says the per capita cost for Canadians paying interest on the entire federal debt — which does not reduce the debt — varies from country to country depend on the province they live in.
Residents of Newfoundland and Labrador will pay the highest per capita interest expense on debt this year at $2,727, followed by Quebec ($2,110); Ontario ($1,790); PEI ($1,736); Manitoba ($1,690); New Brunswick ($1,635); Saskatchewan ($1,581); Nova Scotia ($1,553); Alberta ($1,482) and BC ($1,398).
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The $27 billion Ontario residents will pay in combined interest payments on federal and provincial debt this year is almost as much as the $30.4 billion the province will spend on hospitals.
Just paying interest on Ontario’s provincial debt – $13.6 billion – will cost more than what the province pays for post-secondary education ($10.8 billion).
The $18.3 billion Quebec residents will pay in interest on their province’s combined federal and provincial debt this year is almost as much as the $19.1 billion the province will spend on education will spend.
The $10.5 billion that Quebecers will have to pay in interest on the province’s debt alone is more than the $10 billion the province will spend paying doctors.
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In BC, residents will pay $7.4 billion in interest on their combined federal and provincial debt, almost as much as the $7.9 billion the province will spend on social services.
BC residents’ $2.7 billion will pay interest on their province’s debt alone, costing more than the $2.4 the province spends on transportation.
In Alberta, residents pay $6.7 billion in interest on their combined federal and provincial debt, more than the $5.6 billion the province spends on physician compensation.
The $2.7 billion Albertans will pay in interest on their province’s debt alone is nearly double the $1.5 billion the province will spend on its justice system.
While national debt has risen in the wake of the COVID-19 pandemic, the study finds that rising national debt has been a staple of the economy for years.
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In 2019, the year before the pandemic hit, Canadians were paying an estimated $54.8 billion in interest on the combined federal and provincial debt.
The study finds that past interest payments have been cushioned by historically low interest rates, which have been raised dramatically in less than a year to fight inflation.
The Bank of Canada raised its benchmark interest rate eight times from 0.25% in March 2022 to 4.50% last month, the highest rate since 2007.
Higher interest rates mean governments have to pay more for the money they borrow over time.
The study warns that higher interest rates on government loans lead to higher taxes and lower public services, as money has to be shifted away from them to pay interest on debt.
