Next week, the Carney government will table its long-awaited first budget. Earlier this year, Prime Minister Mark Carney launched a federal spending review to find $25 billion in savings by 2028. Even if the government meets this goal, it won’t be enough to eliminate the federal deficit—projected to reach as high as $92.2 billion in 2025/26—and start paying down debt. That means a substantial amount of taxpayer dollars will continue to flow towards federal debt interest payments, rather than programs and services or tax relief for Canadians.
When a government spends more than it raises in revenue and runs a budget deficit, it accumulates debt. As of 2024/25, the federal and provincial governments will have accumulated a total projected $2.3 trillion in combined net debt (total debt minus financial assets). Of course, like households, governments must pay interest on their debt. According to our recent study, the provinces and federal government expect to spend a combined $92.5 billion on debt interest payments in 2024/25.
And like any government spending, taxpayers fund these debt interest payments. The difference is that instead of funding important programs, such as health care, these taxpayer dollars will finance government debt. This is the cost of deficit spending.
How much do Canadians pay each year in government debt interest costs? On a per-person basis, combined provincial and federal debt interest costs in 2024/25 are expected to range from $1,937 in Alberta to $3,432 in Newfoundland and Labrador. These figures represent provincial debt interest costs, plus the federal portion allocated to each province based on a five-year average (2020-2024) of their share of Canada’s population.
For perspective, it’s helpful to compare debt interest payments to other budget items. For instance, the federal government estimates that in 2024/25 it will spend more on debt interest costs ($53.8 billion) than on child-care benefits ($35.1 billion) or the Canada Health Transfer ($52.1 billion), which supports provincial health-care systems.
Provincial governments too spend more money on interest payments than on large programs. For example, in 2024/25, Ontario expects to spend more on debt interest payments ($15.2 billion) than on post-secondary education ($14.2 billion). That same year, British Columbia expects to spend more on debt interest payments ($4.4 billion) than on child welfare ($4.3 billion).
Unlike other forms of spending, governments cannot simply decide to spend less on debt interest payments in a given year. To lower their debt interest payments, governments must rein in spending and eliminate deficits so they can start to pay down debt.
Unfortunately, most governments in Canada are doing the opposite. All but one province (Saskatchewan) plans to run a deficit in 2025/26 while the federal deficit could exceed $90 billion.
To stop racking up debt, governments must balance their budgets. By spending less today, governments can ensure that a larger share of tax dollars go towards programs or tax relief to benefit Canadians rather than simply financing government debt.
Tegan Hill and Jake Fuss are economists with the Fraser Institute. The op-ed was co-authored by William Dunstan, a Fraser Institute analyst
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