Federal budget: Paying to service the growing debt

Montreal, April 21, 2021 – This Monday, the federal government of Prime Minister Justin Trudeau presented its first budget in over two years. In a publication launched today, Montreal Economic Institute researchers shine a spotlight on the rapid growth of debt service charges.

“Although some of the government’s new expenditures are directly related to the pandemic, this budget has absolutely no plan for returning to budgetary balance,” says Miguel Ouellette, Director of Operations and Economist at the MEI. “On the contrary, this budget is very wide-ranging and introduces new spending items that risk becoming permanent.”

“The ballooning of the federal debt in recent years has a very tangible impact on our ability to pay for public services. We’ve updated our Debt Clock, and the federal debt burden will grow by $447 million a day, or over 18 million an hour! And then there’s the interest on the debt, which costs us $22 billion a year,” explains Mr. Ouellette. “That’s 6% of the federal budget that is currently allocated just to cover interest payments on the debt, but this will climb to 9% in 2025-2026, or over $39 billion a year. In short, nearly one dollar out of every ten will serve only to pay interest.”

“To put this into perspective, the federal government currently spends 187 times more servicing its debt than it does supporting Canada’s veterans. As for home care, mental health, and homelessness prevention combined, nearly seven times more resources are allocated to paying interest on the debt,” says Maria Lily Shaw, Economist at the MEI. “Although we’re told that Canada can afford to take on this kind of debt, we need to realize that the government is placing us in a precarious situation. Interest rates will not stay so low forever, and the least little increase will have a significant effect on public finances,” concludes Ms. Shaw.

The Viewpoint entitled “Debt Service Charges: Not the Main Type of Service We Should Be Funding” and our Federal Debt Clock are available on our website.

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The Montreal Economic Institute is an independent public policy think tank. Through its publications, media appearances, and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.

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Interview requests: Marie-Eve McNicoll, Communications Advisor, Cell. 581-777-5060, Email: memcnicoll@iedm.org