Till debt do depart?

Canada’s combined federal and provincial debt has increased to more than $1.2 trillion in fiscal 2013-14, a new report says.

Canadian governments (federal, provincial and local) paid $61.7 billion in interest on a total debt of $1.2 trillion in 2013-14. That is just a fraction more than the $61 billion spent across the country on primary and secondary education in 2011-12, says a recent report by the Fraser Institute. As a result, there is less revenue available for other priorities such as schools, hospitals, highways and lower taxes.

The report, The Cost of Government Debt in Canada, also points out that Canada’s combined federal and provincial debt has increased to more than $1.2 trillion in fiscal 2013-14, up from $823 billion in 2007-08. That is $34,905 for every Canadian adult and child. The federal government, which is $688 billion in debt, spent $29.3 billion on interest payments. That is more than 11 cents of every dollar of revenue.

Ontario and Quebec carry the heaviest debt burden in Canada. "Quebec and Ontario are deeper in debt than every other province. Yet instead of getting their fiscal houses in order, both governments continue to avoid the tough decisions needed to repair their public finances," says Sean Speer, study co-author and associate director of the Fraser Institute’s Centre for Fiscal Studies.

In Ontario, the provincial government spent $10.6 billion, or 9.1% of overall revenue, on interest payments in 2013-14. In so doing, it exceeded the entire budget for the Ministry of Community and Social Services ($10.1 billion).

In Quebec, the provincial government also spent $10.6 billion on debt interest payments in 2013-14 — far more than the $7.8 billion it received from Canadian taxpayers in equalization payments.

Higher interest rates are looming and pose a real threat to indebted governments. "Governments have been borrowing at historically low interest rates," says Charles Lammam, study co-author and resident scholar in economic policy at the Fraser Institute. "So if interest rates rise, the cost of carrying debt will increase. Ontario and Quebec are especially vulnerable to interest rate hikes."