MORE SPENT ON INTEREST THAN ON HEALTHCARE

 

The Unrelenting Tide: How Canada's Debt Burden Grew to a Quarter-Trillion Dollar Interest Bill

Over the past decade, Canada has seen a remarkable and rapid expansion of its national debt, not just at the government level but in the hands of its citizens as well. What began as a response to global financial crises and a once-in-a-century pandemic has evolved into a new fiscal reality, with a debt-to-GDP ratio soaring past 200% and an interest bill that rivals the country's most fundamental spending priorities. The question is no longer "is debt a problem?" but rather, "how long can this go on?"

A Decade of Debt Expansion: By the Numbers

The story of Canada's debt in the last ten years is one of unprecedented growth. In 2015, the total combined debt of the federal and provincial governments, along with household debt (including mortgages), stood at approximately $3.5 trillion. By 2025, this figure is projected to be nearly $6 trillion, a staggering increase of over 70%.

This expansion has not been uniform. While government debt grew to fund emergency relief, stimulus spending, and new social programs, household debt has been primarily driven by the housing market. Historically low interest rates incentivized Canadians to take on massive mortgages, pushing household credit market debt to over $3.1 trillion, the largest single component of the nation's total debt.

When a country’s debt grows, the cost of servicing it grows with it. The annual interest paid on all government and household debt has risen sharply. In 2015, the combined government interest bill was around $60 billion, and household interest payments were significantly lower. By 2025, this has ballooned to a total estimated annual interest cost of over $264 billion, a figure that represents a significant portion of Canada's economic output.

What Does it Mean to Be Over 200% in Debt-to-GDP?

To put these astronomical numbers into perspective, economists use the debt-to-GDP ratio, which measures debt relative to a country's total economic output.

• In 2015, Canada’s total combined debt was roughly 226% of its GDP.
• By 2025, this ratio is projected to be nearly 250%.

In simple terms, this means the total debt held by all levels of government and all Canadians is two and a half times the size of Canada's entire annual economy. This is a level of indebtedness that raises fundamental questions about sustainability.

While a country is not a household and its ability to manage debt is more complex, a ratio of over 200% signals a dangerous trajectory. It means:

1.    A massive interest burden: A quarter-trillion dollars in interest payments diverts vast sums of money away from productive investments and public services.

2.    Less fiscal flexibility: High debt levels limit the government's ability to respond to future crises. With a debt service ratio that now rivals major spending programs, there is little room to borrow more without risking a loss of investor confidence.

3.    Risk of a "debt spiral": If lenders, domestic or foreign, demand higher interest rates due to concerns about sustainability, the cost of borrowing could accelerate rapidly, creating a vicious cycle of rising debt and rising interest payments.

The Interest Bill vs. Key Public Services

Perhaps the most stark illustration of this new fiscal reality is comparing the interest on government debt to core public spending. For 2025, the federal government's projected debt charges of over $53.8 billion are:

• More than the $52.1 billion in health transfers to the provinces.
• Significantly more than the $34.6 billion in defense spending.

This shows that the government is now spending more to service its past debt than it is on funding the very health care system and national security it is meant to protect.

Conclusion: The Unavoidable Reckoning

The path of Canada's debt over the past decade is a direct consequence of both reactive crisis management and deliberate policy choices. While the unprecedented spending of the pandemic was necessary, the trend of consistent deficits has created a debt burden that is now growing faster than the economy itself.

Without a major shift in either fiscal policy (through spending cuts or tax increases) or a significant boost in economic productivity, the current level of debt is not sustainable over the long term. The rising tide of debt, and its accompanying interest bill, is a silent but powerful force that will increasingly limit the choices available to future governments and generations of Canadians. The question, "how long can this go on?" is not a rhetorical one; it is an urgent call for a national conversation about Canada's financial future.