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Cost of federal government debt rising for Canadians

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4 minute read

From the Fraser Institute

By Ben Eisen and Jake Fuss

As the federal deficit persists and government debt mounts, the burden of debt interest costs is growing for Canadian taxpayers.

The Trudeau government is on track for another large budget deficit forecasted at $40.0 billion, slightly larger than the $35.3 billion deficit last year. The government’s long-term forecast suggests deficits will continue throughout the projection period, which ends in 2028/29.

There’s nothing new about the federal books being splashed with red ink. The Trudeau government has run significant deficits every year of its tenure. What’s different this time, however, is that due to higher interest rates the cost of the government’s borrowing is much higher. As a result, debt costs are set to increase significantly in the years ahead, which will burden taxpayers today and in the future while also making it harder for future prime ministers and finance ministers to balance their books.

Let’s dig a bit deeper into the numbers. When the Trudeau government took power during fiscal year 2015/16, debt interest costs were $21.8 billion. In 2021/22, despite a long string of deficits and huge increase in debt, low interest rates during the period of intensive borrowing prevented a surge in debt interest costs, which stood at $24.5 billion.

But last fiscal year marked the start of a new chapter in Canada’s fiscal history as higher interest rates combined with significant debt accumulation caused debt interest costs to rise substantially, from $24.5 billion to $35.0 billion. Another similar increase is expected this year, with debt costs forecasted to rise to $46.5 billion—a 90 per cent increase in just two years with a further projected increase to $52.4 billion for next year.

This sudden increase in debt interest costs has important and immediate implications for federal finances. In 2021/22, 5.9 per cent of all federal revenue was spent on paying the interest on federal debt. By next year, according to Trudeau government forecasts, this will rise to 10.8 per cent.

Canadian history shows us how debt interest costs can quickly spiral out of control. During the debt crisis of the early 1990s, after many years of continuous deficits, debt interest costs were consuming one-third of every dollar Ottawa collected. Today’s debt interest costs are not as high as they were in the 1990s, but there’s no reason to wait until a crisis develops to take action.

The fact that debt interest is taking a bigger bite out of federal revenue should not just be a matter of academic concern for public finance economists. It affects all Canadian taxpayers. A larger share of the money collected from individuals and businesses being spent on debt leaves less for other priorities such as tax relief, which can help encourage economic growth, or core public services that Canadians value.

The Trudeau government has often spoken about the benefits of fiscal restraint but has thus far failed to exercise much of it. If the prime minister and his cabinet want to halt the growth in debt interest they must reverse the free spending that has characterized their time in government to slow the accumulation of debt.

Alberta

Big win for Alberta and Canada: Statement from Premier Smith

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Premier Danielle Smith issued the following statement on the April 2, 2025 U.S. tariff announcement:

“Today was an important win for Canada and Alberta, as it appears the United States has decided to uphold the majority of the free trade agreement (CUSMA) between our two nations. It also appears this will continue to be the case until after the Canadian federal election has concluded and the newly elected Canadian government is able to renegotiate CUSMA with the U.S. administration.

“This is precisely what I have been advocating for from the U.S. administration for months.

“It means that the majority of goods sold into the United States from Canada will have no tariffs applied to them, including zero per cent tariffs on energy, minerals, agricultural products, uranium, seafood, potash and host of other Canadian goods.

“There is still work to be done, of course. Unfortunately, tariffs previously announced by the United States on Canadian automobiles, steel and aluminum have not been removed. The efforts of premiers and the federal government should therefore shift towards removing or significantly reducing these remaining tariffs as we go forward and ensuring affected workers across Canada are generously supported until the situation is resolved.

“I again call on all involved in our national advocacy efforts to focus on diplomacy and persuasion while avoiding unnecessary escalation. Clearly, this strategy has been the most effective to this point.

“As it appears the worst of this tariff dispute is behind us (though there is still work to be done), it is my sincere hope that we, as Canadians, can abandon the disastrous policies that have made Canada vulnerable to and overly dependent on the United States, fast-track national resource corridors, get out of the way of provincial resource development and turn our country into an independent economic juggernaut and energy superpower.”

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Business

Canada may escape the worst as Trump declares America’s economic independence with Liberation Day tariffs

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MXM logo  MxM News

Quick Hit:

On Wednesday, President Trump declared a national emergency to implement a sweeping 10% baseline tariff on all imported goods, calling it a “Declaration of Economic Independence.” Trump said the tariffs would revitalize the domestic economy, declaring that, “April 2, 2025, will forever be remembered as the day American industry was reborn.”

Key Details:

  • The baseline 10% tariff will take effect Saturday, while targeted “reciprocal” tariffs—20% on the EU, 24% on Japan, and 17% on Israel—begin April 9th. Trump also imposed 25% tariffs on most Canadian and Mexican goods, as well as on all foreign-made cars and auto parts, effective early Thursday.

  • Trump justified the policy by citing foreign trade restrictions and long-standing deficits. He pointed to policies in Australia, the EU, Japan, and South Korea as examples of protectionist barriers that unfairly harm American workers and industries.

  • The White House estimates the 10% tariff could generate $200 billion in revenue over the next decade. Officials say the added funds would help reduce the federal deficit while giving the U.S. stronger leverage in negotiations with countries running large trade surpluses.

Diving Deeper:

President Trump on Wednesday unveiled a broad new tariff policy affecting every imported product into the United States, marking what he described as the beginning of a new economic era. Declaring a national emergency from the White House Rose Garden, the president announced a new 10% baseline tariff on all imports, alongside steeper country-specific tariffs targeting longstanding trade imbalances.

“This is our Declaration of Economic Independence,” Trump said. “Factories will come roaring back into our country — and you see it happening already.”

The tariffs, which take effect Saturday, represent a substantial increase from the pre-Trump average U.S. tariff rate and are part of what the administration is calling “Liberation Day” for American industry. Reciprocal tariffs kick in April 9th, with the administration detailing specific rates—20% for the European Union, 24% for Japan, and 17% for Israel—based on calculations tied to bilateral trade deficits.

“From 1789 to 1913, we were a tariff-backed nation,” Trump said. “The United States was proportionately the wealthiest it has ever been.” He criticized the establishment of the income tax in 1913 and blamed the 1929 economic collapse on a departure from tariff-based policies.

To underscore the move’s long-anticipated nature, Trump noted he had been warning about unfair trade for decades. “If you look at my old speeches, where I was young and very handsome… I’d be talking about how we were being ripped off by these countries,” he quipped.

The president also used the moment to renew his push for broader economic reforms, urging Congress to eliminate federal taxes on tips, overtime pay, and Social Security benefits. He also proposed allowing Americans to write off interest on domestic auto loans.

Critics of the plan warned it could raise prices for consumers, noting inflation has already risen 22% under the Biden administration. However, Trump pointed to low inflation during his first term—when he imposed more targeted tariffs—as proof his strategy can work without sparking runaway costs.

White House officials reportedly described the new baseline rate as a guardrail against countries attempting to game the system. One official explained the methodology behind the reciprocal tariffs: “The trade deficit that we have with any given country is the sum of all trade practices, the sum of all cheating,” adding that the tariffs are “half of what they could be” because “the president is lenient and he wants to be kind to the world.”

In addition to Wednesday’s sweeping changes, Trump’s administration recently imposed a 25% tariff on Chinese goods tied to fentanyl smuggling and another 25% on steel and aluminum imports—revoking previous carve-outs for countries like Brazil and South Korea. Future tariffs on semiconductors, pharmaceuticals, and raw materials such as copper and lumber are reportedly under consideration.

Trump closed his remarks with a message to foreign leaders: “To all of the foreign presidents, prime ministers, kings, queens, ambassadors… I say, ‘Terminate your own tariffs, drop your barriers.’” He declared April 2nd “the day America’s destiny was reclaimed” and promised, “This will indeed be the golden age of America.”

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