Canada's National Debt Currently Sits at $1.236 Trillion

Canada's current federal debt number sits at $1.236 trillion.

Since Justin Trudeau took office in November of 2015, the Canadian federal debt has increased approximately 102%, from $623.9 billion to $1.236 trillion.

What makes this increase interesting is the fact that Canada actually posted a surplus of $1.9 billion for the 2014-2015 fiscal year - the year before Justin Trudeau took office (this was eventually revised down to a deficit of $550 million due to an accounting change, though the official number was $1.9 billion).

Unlike other countries, Canada didn't enter the last decade with structural deficits.

In fact, during the 1990s and 2000s, Canada was able to pay down a significant portion of its debt, with debt liabilities as a percentage of the GDP dropping from over 90% to a low of just over 50% by the mid 2000s.

The fiscal position of Canada was the envy of the world, and their AAA credit rating was rightly deserved.

Over the past decade, however, Canada has just much of the rest of the world in posting structural deficits that seem like they will never end. It's hard to imagine Canada posting a balanced budget anytime soon. The quickly rising debt total leads to greatly increased public debt charges, which leads to increased deficit spending. This is a spiral that is hard to dig out from.

For the current fiscal year, the Canadian government is expected to spend $55.6 billion to service its public debt, making it one of the largest line items in the budget.

By 2030-31, this number is expected to grow to $82.4 billion.

With higher inflation likely to persist throughout the world for the foreseeable future, debt interest charges are likely to remain high.

This has caused some alarm in the country, with the Parliamentary Budget Officer stating that Canada's current fiscal course is "unsustainable".

So how did a country that was posting budget surpluses just over a decade ago manage to double its debt in a decade?

Three main reasons:

1) Justin Trudeau. When Trudeau was elected, he enacted a policy of "moderate" deficits in order to fund investment in the country. This included investments in new social programs such as a $10/day national daycare program, pharmacare and other initiatives. Balanced budgets were no longer the priority - instead, Trudeau said, why not take advantage of low interest rates to invest in the country?

2) COVID-19. This is the big one. Canada decided to take on COVID-19 by aiming a fiscal bazooka at the pandemic. Wage subsidies and the CERB (Canadian Emergency Response Benefit) program resulted in an eye-popping $327 billion deficit in 2020-21 alone. While other countries were more restrained in their pandemic support, Canada went in the opposite direction.

3) Rising interest rates. Interest rates have somewhat normalized over the past five years, and this has resulted in severely increased debt service costs for the nation.

As mentioned, in 2025-26, Canada will spend $55.6 billion in debt interest. This is more than what the nation will spend on the Canada Health Transfer, which is where the federal government transfers money to provinces to pay for health care.

Canada has decided that structural deficits will be the norm going forward, as the average deficit over the next five years is projected to be $64.3 billion. Past that, the PBO projects that deficits will plateau in the $55-$60 billion range from 2030-2035.

In short, Canada has joined the lineup of countries with structural deficits as far as the eye can see, and this isn't expected to change anytime soon.

Filed under: General Knowledge