OPINION: Carney’s ‘very different approach’ will further erode Ottawa’s finances

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This week, after five months off and one federal election, Parliament starts a new session in Ottawa. And federal finances should be a top priority. 

Too much of anything can be harmful. In recent years, the size of the Canadian government and the government debt burden have grown too large, harming economic growth and living standards. When the government grows too large, it begins taking over functions and resources that are better left to the private sector. 

Consider this. From 2014 to 2024, total government spending in Canada (federal, provincial and local) increased from 38.4% as a share of gross domestic product (GDP) to 44.7% — the second-fastest increase among 40 advanced countries worldwide. Consequently, the total size of government in Canada increased from 25th highest to 17th highest (out of the same 40 countries). Again, this means that government now essentially controls a significantly larger share of our economy. 

During the same 10-year period, Canada’s gross government debt (federal, provincial and local) increased from 85.5% (as a share of GDP) to 110.8% — the third-fastest increase among the 40 countries. As such, Canada’s debt ranking among the 40 countries increased from 14th highest to 7th highest. 

Why should Canadians care? 

A large government debt burden lands squarely on the backs of Canadians. For example, governments and the private sector compete for the limited pool of savings available for borrowing. As governments increase the amount they borrow, fewer savings are available for the private sector. All else equal, this drives up interest costs and makes it more expensive for families to take out a mortgage or businesses to attract investment. 

Moreover, debt accumulation today will likely mean higher taxes in the future. Indeed, a 16-year-old Canadian in 2025 will pay an estimated $29,663 over their lifetime in additional personal income taxes (that they otherwise wouldn’t pay) due to ballooning federal debt. In other words, by accumulating debt today, the government is disproportionately burdening younger generations with higher taxes in the future. 

Of course, when talking about Canada’s overall debt load, the federal government plays a big role. The Carney government says it will “build Canada into the strongest economy in the G7” by employing a “very different approach” to federal fiscal policy than its predecessor. Yet the Carney campaign platform promises to add to Ottawa’s mountain of debt (which currently stands at a projected $2.2 trillion) by running huge annual deficits until at least 2028-29, even outspending the Trudeau government’s previous plan. This is not a “very different approach.” 

The Carney government plans to table its first budget in the fall. As Parliament resumes, let’s hope the new prime minister shows real leadership by charting a clear path towards fiscal sustainability and stronger economic growth. 

 — Jake Fuss and Grady Munro are analysts at the Fraser Institute