A new study by the Fraser Institute shows that, after adjusting for inflation, Canada’s total net debt, including federal and provincial debt, will reach C$2.44 trillion this fiscal year, a 97.7% increase from C$1.24 trillion in the 2007-08 fiscal year, almost doubling.
The institute previously projected C$2.2 trillion for 2024, and C$2.3 trillion last year. Over the past 18 years, the federal government alone has incurred an additional $712.7 billion in debt, a staggering 93.7% increase, primarily due to fiscal responses during the COVID-19 pandemic.
From the 2019-20 fiscal year to the current fiscal year, the combined net debt of both levels of government has reached $603.7 billion, an increase of 32.8%. Study author Jake Fuss, director of fiscal research at the Fraser Institute, points out that the Canadian government has completely abandoned the fiscally prudent approach followed from the mid-1990s to the late 2000s, returning to the old path of normalized debt and deficits from the 1970s to the 1990s.
In contrast, in the 12 years prior to the study, federal net debt had been reduced by C$364.5 billion. Fuss describes it as: “The new debt incurred by the federal government in the past 18 years is almost double the amount of debt served in the previous decade.” At the provincial level, Alberta, which was the only province with net financial assets, has transformed into a rapidly indebted province with a net debt increase of CAD 91.3 billion over the past 15 years.
British Columbia saw the most dramatic debt growth, soaring 200% to CAD 70.3 billion over 18 years; Manitoba increased by 144.7% to CAD 22.5 billion, Saskatchewan by 108.9% to CAD 9.4 billion, and Ontario led all provinces with a debt of CAD 459.4 billion, an increase of 94.9%. Quebec and the three Atlantic provinces (excluding Prince Edward Island) all saw net debt increases of less than 35%.
In terms of economic share, the combined net federal and provincial debt is equivalent to 75.4% of GDP, with federal debt accounting for 45.4% and provincial debt for 29.9%. Among the provinces, Manitoba has the highest debt-to-GDP ratio, projected to reach 91.3% in fiscal year 2025-26. Alberta, despite experiencing the largest increase in this ratio (21.5 percentage points), still ranks lowest nationally at 8.1%. Newfoundland and Labrador has the highest debt ratio at 44.5%, followed by Quebec at 38.8% and Manitoba at 38%. Only Quebec and Nova Scotia saw a decrease in their debt ratios, both decreasing by 2.7 percentage points.
After allocating federal debt by population share, Newfoundland and Labrador has the highest per capita debt in the country at $71,611 CAD; Ontario has a per capita debt of $63,574 CAD, with its total net debt exceeding $1 trillion CAD. Alberta has the lowest per capita debt at $42,368 CAD. Fuchs warned that the federal government has projected a 25.6% increase in net debt to reach C$1.86 trillion by fiscal year 2030-31. Except for Manitoba and Ontario, all other provinces are expected to continue running budget deficits from this fiscal year through 2028-29. He believes that the ever-expanding debt will push up long-term interest rates, increase private sector borrowing costs, and dampen capital investment.
Declining investment levels will severely constrain productivity growth and weaken future economic performance. Simultaneously, the government may be forced to raise taxes to repay debt, and interest payments will crowd out funding for public programs such as healthcare, education, and social services, further narrowing fiscal space. Foss emphasized that now that the pandemic is long gone, it is a crucial window to develop a long-term plan to return to a balanced budget.
“If governments at all levels do not embark on the difficult process of curbing debt accumulation and ultimately alleviating the debt burden, the consequences will be increasingly severe.”