Is it a bird? A plane? No, it’s… the size of Canada’s debt servicing costs. The Parliamentary Budget Officer’s (PBO) latest Economic and Fiscal Outlook projects Ottawa will accumulate $333 billion in deficit spending over 5 years. However, the Government of Canada (GoC) will need to borrow nearly three-quarters of a trillion dollars. Debt servicing is now the fastest-growing federal expense, projected to consume almost 1 in 7 dollars of revenue by 2030.
Federal Borrowing To Grow More Than 2x As Much As Deficits
Ottawa will accumulate $333.3 billion in cumulative deficits from 2026-27 through 2030-31. At the same time, the GoC will borrow an additional $732.9 billion, according to the PBO’s projections. That’s roughly 2.2 times as much borrowing than the projected deficit—or a deficit less than half the size of new borrowing. It depends on whether you’re a half-insolvent or half-solvent kind of person.
One of the reasons behind the gap is accounting methodology. Loans are both a liability and an asset; just think of it like a mortgage. One borrower’s liability of $100k is an asset of $100k to the lender. In this case, the gap is driven by Crown corporations and acquiring other assets. When the GoC borrows $1 billion and lends it to a Crown corporation, it owes investors $1 billion, but it’s also owed $1 billion. The loan doesn’t increase the deficit, just interest costs and any resulting losses.
It’s debatable whether it’s a good or bad decision, but the consequences are much clearer. “Most simply, cash outlays drive borrowing, which in turn increase market debt and public debt charges, independent of how they are recorded on an accrual basis,” warns the PBO.
The PBO’s calculations show a sharp impact on public finances in the coming years.
Canada To Spend Almost 1 In 7 Dollars of Revenue On Debt Payments
The PBO warns that debt charges are now the fastest-growing public expense. Annual public debt charges are projected to climb from $24.5 billion in 2021-22 to $59.3 billion in 2026-27. Their projections show it explodes to $83.0 billion in 2030-31, much faster than revenue. The PBO estimates debt repayment will consume 13.6% of revenue by 2030-31, up from 10.5% in 2025-26. Debt servicing is set to grow 29.5% faster than revenue, consuming almost 1 in 7 dollars collected.
Most are likely to assume this is due to higher interest rates, but that’s not what the numbers show. The PBO explains that this mainly reflects a larger stock of debt, not higher interest rates. That’s the fanciest way to say the captain of this ship didn’t realize they lost their anchor.
