GOLDSTEIN: Interest on gov’t debt costing us $50 billion a year

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Canadian taxpayers will pay almost $50 billion in interest payments this year on Canada’s combined federal and provincial government debt, according to a new study by the Fraser Institute.

In descending order, that works out to $2,604 per person in Newfoundland and Labrador; $1,417 in Quebec; $1,376 in New Brunswick; $1,375 in Ontario; $1,293 in P.E.I. and Nova Scotia; $1,229 in Manitoba; $1,151 in Saskatchewan; $1,076 in Alberta; and $1,059 in B.C.

For a family of four, the cost of interest payments is $10,416 in Newfoundland and Labrador; $5,668 in Quebec; $5,504 in New Brunswick; $5,500 in Ontario; $5,172 in PEI and Nova Scotia; $4,916 in Manitoba; $4,604 in Saskatchewan; $4,304 in Alberta; and $4,236 in B.C.

“Interest must be paid on government debt, and the more money governments spend on interest payments, the less money is available for programs and services that matter” to Canadians, said Steve Lafleur, co-author of the study Federal and Provincial Debt Interest Costs for Canadians.

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It says the federal government alone will spend $20.2 billion on debt servicing charges in 2020/21, roughly equivalent to what it expects to spend on equalization payments ($20.6 billion) or collect in employment insurance premiums ($21.5 billion).

Ontarians are projected to spend $20.3 billion on combined federal and provincial interest costs in 2020/21, more than the province will spend on infrastructure programs this year.

“Even before the COVID-19 pandemic and recession, governments at Queen’s Park and in Ottawa have been racking up large debts, and this debt imposes real costs on Ontario taxpayers,” said study co-author Jake Fuss. “Interest payments for Ontario taxpayers are substantial, and that takes money away from other important priorities.”

Expenditures on interest costs for Albertans ($4.8 billion) are close to their expected spending on advanced education in the province.

Combined federal-provincial interest costs for British Columbians ($5.5 billion) are more than the province expects to spend on its medical services plan this year.

Earlier this month, a Fraser Institute report said pandemic-related spending this year is expected to hike Canada’s combined federal and provincial debt to $2 trillion, double the $1 trillion combined debt in 2007-08.

Adjusted for inflation, that means in the current fiscal year, Canada’s combined debt will equal 91.6% of the annual output of the Canadian economy, up from 65.2% last year.

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In six provinces, the combined debt now exceeds 100% of their entire economies, including Ontario (100.5%); PEI (101.6%); Quebec (104.2%); Newfoundland and Labrador (104.7%); New Brunswick (105%) and Nova Scotia (106%).

That means it would take more than a year of every dollar generated by the economies of these provinces — their entire Gross Domestic Product — to eliminate their combined debt.

Newfoundland and Labrador has the highest combined net debt per person ($64,224) followed by Ontario ($58,559); Quebec ($53,927); Manitoba ($51,867); New Brunswick ($50,095); Nova Scotia ($49,010); P.E.I. ($46,917); Alberta ($45,974); Saskatchewan ($44,501); and B.C. ($43,635).

While the Trudeau government has not brought down a budget in two years, a November economic statement by Finance Minister Chrystia Freeland pegged this year’s federal deficit at $381.6 billion and total federal debt at $1.1 trillion.

Much of the recent spending by Ottawa and the provinces has been to keep the economy afloat because of the COVID-19 recession.

So far, governments (and taxpayers) have been partly insulated from the financial impact of going ever deeper into debt because of historically-low interest rates.