For those who worry about the sustainability of Canada’s debt load, there was a blip of good news in the budget released Tuesday: relative to the size of the economy, federal interest payments this past fiscal year were actually slightly lower than what had been forecast in last December’s fall economic statement.
Going forward, it’s a different story.
Public debt charges – the costs of servicing the federal debt – are forecast to climb steadily over the next five years, jumping 42.5 per cent to $76-billion in 2029-30. As it is, the government paid more to service its debt last fiscal year ($53.4-billion) than it sent to the provinces for health transfers ($52.1-billion).
Five years from now debt charges are forecast to be equal to 90 per cent of all the money Ottawa sends to the provinces in health and social transfers combined.
The reason for the rise is a combination of steeper interest rates and increased spending – the budget showed a deficit of $78.3-billion, an 86-per-cent jump from the most recent projection.
Returning to good news, the projected debt cost burden five years from now of 2.1 per cent of GDP is still below the nearly 60-year average of 3.1 per cent, and far shy of the 6.5-per-cent peak reached in 1991.
But the budget projections also depend on economic growth meeting estimates, there being no new increases in deficit spending, and for long-term interest rates to remain stable.
With three more years left in Donald Trump’s presidency, and the North American trade deal under threat as talks kick off next year, one or all of those factors could still be put to the test.
Decoder is a weekly feature that unpacks an important economic chart.