During the pandemic, government budget deficits have grown substantially across Canada—at a time when interest costs are at historical lows. If interest costs return to the slightly higher levels of 2019, deficits would increase by billions for governments across the country.
And yet, several governments (including the Trudeau government) show little concern over their high levels of borrowing and instead simply point to current low interest rates. But this is a flawed and short-sighted approach.
Consider this. For the federal and nine provincial governments (except New Brunswick), if interest costs—that is, the total amount of interest paid relative to the amount of gross debt outstanding—returned to 2019-20 levels, combined interest payments in 2021-22 would rise from the current projection of $53.6 billion to $70.6 billion, an increase of $17.0 billion (or 32 per cent).
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