{"id":520154,"date":"2026-03-07T10:10:11","date_gmt":"2026-03-07T10:10:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/520154\/"},"modified":"2026-03-07T10:10:11","modified_gmt":"2026-03-07T10:10:11","slug":"canadas-public-spending-spree-means-higher-mortgages-for-longer","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/520154\/","title":{"rendered":"Canada’s Public Spending Spree Means Higher Mortgages For Longer"},"content":{"rendered":"

Canada is using public spending to mask private sector weakness, and the bill won\u2019t stop at taxes. A new National Bank of Canada (NBC)<\/a> report warns public investment is growing at over twice the rate of overall GDP. It\u2019s also fueling more borrowing, lifting the benchmark rate that impacts borrowing costs for everything from government debt to your mortgage. Recently more of that spending has been directed into capital projects, including defence\u2014but swapping payroll for weapons doesn\u2019t exactly turn that debt into productive growth. Until weapons start making weapons, anyway.\u00a0<\/p>\n

Canadian Public Investment Growth More Than Double Overall GDP<\/p>\n

Over the past decade, government spending has grown much faster than the broader economy. To illustrate the gap, the bank focuses on the \u201cG\u201d in GDP\u2014government consumption and fixed capital investment. Sluggish private investment has been flat-to-negative in GDP, made up by state spending. Over the past 3 years, public sector fixed capital investment advanced at a 3.5% compound annual growth rate (CAGR), over double the 1.7% CAGR that general GDP has seen. The bank\u2019s index chart shows this wasn\u2019t a long-term trend so much as a post-pandemic shift where public spending filled the gap left by weak private investment.\u00a0\u00a0\u00a0<\/p>\n

\"\"<\/a><\/p>\n

\u201cCanadian government expenditures have decisively outpaced broader economic growth over the past decade,\u201d writes the bank.\u00a0<\/p>\n

Canada\u2019s Public Spending Is Hiding Its Private Sector Pain<\/p>\n

The share of GDP driven by government spending has climbed sharply in recent years. Before 2020, it was rare to see government spending represent more than 25% of total GDP, only seen during extreme downturns like the Global Financial Crisis and the pandemic. Post-pandemic, the share fell towards the historic norm until 2022, when it began to rapidly climb. The Canadian economy is now reliant on government to represent over a quarter of total GDP. The shift occurred before the trade shock.\u00a0<\/p>\n

\"\"<\/a><\/p>\n

The divergence between Canada and the US in the above chart turns more surprising when broken down. Since 2022, Canada\u2019s trailed in major GDP components, with non-residential business investment being one of the more concerning lines.\u00a0<\/p>\n

\"\"<\/a><\/p>\n

\u201c\u2026 government expenditure growth is the only area where Canada holds a relative edge when compared to the U.S. GDP picture, where growth in other components are much more impressive south of the border,\u201d explains NBC. \u201cThankfully, the share of Canadian \u2018G\u2019 allocated to fixed capital (as opposed to consumption) is growing.\u201d\u00a0\u00a0<\/p>\n

Canada\u2019s Public Debt Still Growing: Swapping Workers For Weapons<\/p>\n

Let\u2019s circle back to the composition of state spending, and what that means. Government consumption is spending for day-to-day operations (e.g. payroll). Fixed-capital formation is spending for infrastructure, a term that\u2019s increasingly lost meaning, but traditionally includes things like roads, hospitals, and military capacity. The latter is doing the heavy lifting.\u00a0<\/p>\n

\"\"<\/a><\/p>\n

Program spending is forecast to slow sharply, from 8.1% CAGR over the past 10 years to just 0.5% through 2029-30, with workforce reductions playing a key role. Meanwhile, capital outlays\u2014such as buying weapons\u2014have grown to fill that gap, and then some.<\/p>\n

Canada\u2019s Plan Will Cost You More\u2014and Not Just In Taxes<\/p>\n

Credit is a market-based system, where supply and demand determine cost. When borrowing demand outstrips available capital, lenders want higher yields. When there is excess capital, borrowing becomes cheaper to encourage demand. Since government bond yields set the benchmark price for everything from business loans to mortgages, Ottawa\u2019s spending spree doesn\u2019t just raise the tax burden\u2014it raises all borrowing costs. That means more pressure on housing demand, private investment, and other rate-sensitive parts of growth.\u00a0<\/p>\n

NBC warns it won\u2019t be cheap. \u201cExpansionary policy, like in the U.S., is set to keep the sovereign yield curve at relatively steeper levels,\u201d notes the bank. Their analysis also highlights that the fiscal load is increasingly shifting to provinces, which are expected to drive the borrowing shortfall into 2026.\u00a0<\/p>\n

Yields rise no matter who is doing the borrowing, but the bank argues this mix matters. Investors tend to be more forgiving when debt funds long-term productive assets instead of day-to-day operations. NBC adds that, \u201cOver time, higher defence expenditures could help re\u2011energize Canada\u2019s manufacturing base, which has steadily lost global relevance.\u201d\u00a0\u00a0\u00a0<\/p>\n

However, the improvement the bank points to isn\u2019t the same as solving the problem. It\u2019s more like taking a punch to the stomach instead of the groin\u2014less painful, but still painful. Defence manufacturing offers some short-term relief, but it still depends heavily on government demand rather than market-driven growth. Without a private sector base strong enough to sustain it, the result is just creating a larger liability for the public to pay. Plus interest.\u00a0<\/p>\n

\n\tYou Might Also Like<\/p>\n","protected":false},"excerpt":{"rendered":"Canada is using public spending to mask private sector weakness, and the bill won\u2019t stop at taxes. A…\n","protected":false},"author":2,"featured_media":520155,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[45,49,48,46],"class_list":["post-520154","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-ca","tag-canada","tag-economy"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/520154","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=520154"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/520154\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/520155"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=520154"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=520154"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=520154"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}