Canada drowning in a sea of red ink, says Fraser Institute report

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Canada’s combined federal and provincial government debt almost doubled between 2007 and 2024, rising from $1.21 trillion to $2.3 trillion in inflation-adjusted dollars, according to a new report by the Fraser Institute.

The study, “The Growing Debt Burden for Canadians 2025 Edition,” by the fiscally conservative think tank warns this rapid accumulation of public debt has serious negative consequences  for the Canadian economy, given that the money must be paid back, with interest, eventually.

“The debt burden for families across Canada has been growing substantially,” the study warns.

“As was the case in the 1970s to mid-1990s, deficit spending and debt accumulation have become the norm for the federal and many provincial governments …

“Rising government debt has severe consequences for Canadians as more and more resources are directed toward interest payments and away from programs that help families or improve Canada’s economic competitiveness.”

From 2019 to 2024, the study, authored by Jake Fuss, Tegan Hill and William Dunstan, says Ottawa and the provinces accumulated $493.2 billion in total net debt, an increase of 27.4%.

While some of this increased spending was the result of the pandemic which began in 2020, the report says that five years later, the federal government and most of the provinces have yet to develop any meaningful plans to address the growing problem of total government debt.

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The study concluded Canadians living in Newfoundland and Labrador face the highest combined federal and provincial net debt per person, at $68,861.

That’s followed in descending order by those living in Quebec ($60,491); Ontario ($60,408); Manitoba ($57,143); Nova Scotia ($52,478); P.E.I. ($50,623); B.C. ($49,369); New Brunswick ($48,631); Saskatchewan ($47,227) and Alberta ($40,939).

In addition, the study warned, “interest payments (on government debt) 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.”

A study by Fraser Institute last year estimated that Canadians were paying $81.8 billion annually in interest on $2.2 trillion of federal and provincial government debt.

That amount — which doesn’t lower the debt but merely pays the interest on it — could have covered the entire cost of funding the Canada Pension Plan and the Quebec Pension Plan that year ($79.7 billion) the study said, or, alternatively, could have funded the $81.5 billion Canada’s provinces spent on public education, from kindergarten to Grade 12.

At the federal level, Prime Minister Mark Carney’s campaign platform, released in April, called for $130 billion in new spending over the next four years, dramatically increasing the federal deficits that had been projected by the previous Justin Trudeau government in its fall economic statement last December.

Carney said he planned to run a deficit of $62.3 billion in the current fiscal year, which started on April 1 and ends on March 31, 2026, compared to $42.2 billion by the previous Trudeau government.

In the 2026-27 fiscal year, Carney’s projected deficit was $59.9 billion, compared to Trudeau’s $31 billion; in 2027-28, $54.8 billion, compared to $30.4 billion; and in 2028-29, $47.8 billion, compared to $27.8 billion.

In total, Carney was projecting deficit spending of $224.8 billion over the next four years, compared to $131.4 billion projected by the Trudeau government — an increase of 71%.

While the prime minister has called on federal departments to cut spending by 15% over the next three years, he’s also announced plans for Canada to hit its long-neglected NATO target of earmarking 2% of GDP on national defence this year, rising to 5% by 2035, along with increased spending on “nation-building” projects in the face of U.S. President Donald Trump’s tariff war.

The C.D. Howe Institute projects that could cause Canada’s deficit to soar to $92 billion this year, and average more than $77 billion annually over the next four.

That would inevitably lead to more government spending to pay interest on the federal debt, which is already costing Canadian taxpayers about $1 billion per week to finance.