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Federal debt interest will consume nearly one quarter of income tax revenue in 2024

Published

1 year ago

5 minute read

From the Fraser Institute

By Grady Munro and Jake Fuss

The Trudeau government will table its next budget on April 16. In recent years, the government has overseen a substantial rise in the amount of interest it must pay to service federal debt, reversing a long-standing trend of interest costs declining relative to personal income tax revenues. By 2024/25, according to projections, nearly one in four dollars of personal income tax revenue will go towards debt interest.

Just like how individuals must pay interest when they take out a mortgage, the government must also pay interest when it borrows money. These interest payments represent taxpayer dollars that don’t go towards programs or services for Canadians.

When interest costs rise faster than the government’s ability to pay—i.e. the revenues it brings in—the government will face pressure to take on more debt to maintain funding for programs and services. And by taking on more debt, this places additional upward pressure on interest costs (all else equal) and the cycle repeats.

A useful way to track this is to measure debt interest costs as a share of federal personal income tax (PIT) revenues, which represent Ottawa’s single-most important revenue source. In 2024/25, they’re expected to comprise just under half (46.4 per cent) of total revenues and therefore provide a useful gauge of the government’s ability to pay interest on its debt. As such, the chart below includes projections for federal debt interest costs as a share of PIT revenues for the two decades from 2004/05 to 2024/25.

Chart

As we can see from the chart, for many years federal debt interest costs had been declining as a share of Personal Income Tax revenues. In 2004/05, 34.6 per cent of PIT revenues went towards servicing federal debt, but by 2015/16 that share had fallen to 15.1 per cent. In other words, during the Trudeau government’s first year in office, federal interest costs consumed less than one in six dollars of personal income tax revenue paid by Canadians. Interest costs as a share of PIT revenues continued to fall for the next several years, down to a low of 11.7 per cent in 2020/21. However, this marked the end of the decline, and the years since have seen rapid growth in debt interest costs that far exceeds growth in PIT revenues.

In the two years from 2020/21 to 2022/23, federal interest payments rose from 11.7 per cent of PIT revenues to 16.8 per cent. And by the end of the upcoming fiscal year in 2024/25, debt interest payments will reach a projected 23.4 per cent of PIT revenues. In four years, debt interest payments are expected to have gone from consuming about one in nine dollars of PIT revenue to nearly one in four dollars. Put differently, nearly one quarter of the money taxpayers send to Ottawa in the form of personal income taxes will not go towards any programs or services in 2024/25.

The causes of this sudden rise in interest costs as a share of PIT revenues are the combined effects of a substantial accumulation of debt under the Trudeau government, and a recent rise in interest rates. From 2015/16 to 2022/23, the Trudeau government added $820.7 billion in gross federal debt, and by 2024/25 total debt will reach a projected $2.1 trillion—roughly double the amount inherited by the current government. Meanwhile, from 2022 to 2023, the Bank of Canada increased its policy interest rate from a low of 0.25 per cent to the current rate of 5.00 per cent.

Simply put, federal debt interest costs have risen and are expected to eat up almost one quarter of federal PIT revenues by 2024/25. To help prevent taxpayers from devoting an even larger share of their tax dollars towards debt interest, the Trudeau government should cease its heavy reliance on borrowing in this year’s federal budget.

Authors:

Grady Munro
Jake Fuss
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Massive government child-care plan wreaking havoc across Ontario

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Massive government child-care plan wreaking havoc across Ontario

Published on June 30, 2025

By

From the Fraser Institute

By Matthew Lau

It’s now more than four years since the federal Liberal government pledged $30 billion in spending over five years for $10-per-day national child care, and more than three years since Ontario’s Progressive Conservative government signed a $13.2 billion deal with the federal government to deliver this child-care plan.

Not surprisingly, with massive government funding came massive government control. While demand for child care has increased due to the government subsidies and lower out-of-pocket costs for parents, the plan significantly restricts how child-care centres operate (including what items participating centres may purchase), and crucially, caps the proportion of government funds available to private for-profit providers.

What have families and taxpayers got for this enormous government effort? Widespread child-care shortages across Ontario.

For example, according to the City of Ottawa, the number of children (aged 0 to 5 years) on child-care waitlists has ballooned by more than 300 per cent since 2019, there are significant disparities in affordable child-care access “with nearly half of neighbourhoods underserved, and limited access in suburban and rural areas,” and families face “significantly higher” costs for before-and-after-school care for school-age children.

In addition, Ottawa families find the system “complex and difficult to navigate” and “fewer child care options exist for children with special needs.” And while 42 per cent of surveyed parents need flexible child care (weekends, evenings, part-time care), only one per cent of child-care centres offer these flexible options. These are clearly not encouraging statistics, and show that a government-knows-best approach does not properly anticipate the diverse needs of diverse families.

Moreover, according to the Peel Region’s 2025 pre-budget submission to the federal government (essentially, a list of asks and recommendations), it “has maximized its for-profit allocation, leaving 1,460 for-profit spaces on a waitlist.” In other words, families can’t access $10-per-day child care—the central promise of the plan—because the government has capped the number of for-profit centres.

Similarly, according to Halton Region’s pre-budget submission to the provincial government, “no additional families can be supported with affordable child care” because, under current provincial rules, government funding can only be used to reduce child-care fees for families already in the program.

And according to a March 2025 Oxford County report, the municipality is experiencing a shortage of child-care staff and access challenges for low-income families and children with special needs. The report includes a grim bureaucratic predication that “provincial expansion targets do not reflect anticipated child care demand.”

Child-care access is also a problem provincewide. In Stratford, which has a population of roughly 33,000, the municipal government reports that more than 1,000 children are on a child-care waitlist. Similarly in Port Colborne (population 20,000), the city’s chief administrative officer told city council in April 2025 there were almost 500 children on daycare waitlists at the beginning of the school term. As of the end of last year, Guelph and Wellington County reportedly had a total of 2,569 full-day child-care spaces for children up to age four, versus a waitlist of 4,559 children—in other words, nearly two times as many children on a waitlist compared to the number of child-care spaces.

More examples. In Prince Edward County, population around 26,000, there are more than 400 children waitlisted for licensed daycare. In Kawartha Lakes and Haliburton County, the child-care waitlist is about 1,500 children long and the average wait time is four years. And in St. Mary’s, there are more than 600 children waitlisted for child care, but in recent years town staff have only been able to move 25 to 30 children off the wait list annually.

The numbers speak for themselves. Massive government spending and control over child care has created havoc for Ontario families and made child-care access worse. This cannot be a surprise. Quebec’s child-care system has been largely government controlled for decades, with poor results. Why would Ontario be any different? And how long will Premier Ford allow this debacle to continue before he asks the new prime minister to rethink the child-care policy of his predecessor?

Matthew Lau

Adjunct Scholar, Fraser Institute
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Business

Canada Caves: Carney ditches digital services tax after criticism from Trump

Published on June 30, 2025

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From The Center Square

By

Canada caved to President Donald Trump demands by pulling its digital services tax hours before it was to go into effect on Monday.

Trump said Friday that he was ending all trade talks with Canada over the digital services tax, which he called a direct attack on the U.S. and American tech firms. The DST required foreign and domestic businesses to pay taxes on some revenue earned from engaging with online users in Canada.

“Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately,” the president said. “We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period.”

By Sunday, Canada relented in an effort to resume trade talks with the U.S., it’s largest trading partner.

“To support those negotiations, the Minister of Finance and National Revenue, the Honourable François-Philippe Champagne, announced today that Canada would rescind the Digital Services Tax (DST) in anticipation of a mutually beneficial comprehensive trade arrangement with the United States,” according to a statement from Canada’s Department of Finance.

Canada’s Department of Finance said that Prime Minister Mark Carney and Trump agreed to resume negotiations, aiming to reach a deal by July 21.

U.S. Commerce Secretary Howard Lutnick said Monday that the digital services tax would hurt the U.S.

“Thank you Canada for removing your Digital Services Tax which was intended to stifle American innovation and would have been a deal breaker for any trade deal with America,” he wrote on X.

Earlier this month, the two nations seemed close to striking a deal.

Trump said he and Carney had different concepts for trade between the two neighboring countries during a meeting at the G7 Summit in Kananaskis, in the Canadian Rockies.

Asked what was holding up a trade deal between the two nations at that time, Trump said they had different concepts for what that would look like.

“It’s not so much holding up, I think we have different concepts, I have a tariff concept, Mark has a different concept, which is something that some people like, but we’re going to see if we can get to the bottom of it today.”

Shortly after taking office in January, Trump hit Canada and Mexico with 25% tariffs for allowing fentanyl and migrants to cross their borders into the U.S. Trump later applied those 25% tariffs only to goods that fall outside the free-trade agreement between the three nations, called the United States-Mexico-Canada Agreement.

Trump put a 10% tariff on non-USMCA compliant potash and energy products. A 50% tariff on aluminum and steel imports from all countries into the U.S. has been in effect since June 4. Trump also put a 25% tariff on all cars and trucks not built in the U.S.

Economists, businesses and some publicly traded companies have warned that tariffs could raise prices on a wide range of consumer products.

Trump has said he wants to use tariffs to restore manufacturing jobs lost to lower-wage countries in decades past, shift the tax burden away from U.S. families, and pay down the national debt.

A tariff is a tax on imported goods paid by the person or company that imports them. The importer can absorb the cost of the tariffs or try to pass the cost on to consumers through higher prices.

Trump’s tariffs give U.S.-produced goods a price advantage over imported goods, generating revenue for the federal government.

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