Don’t blame COVID for Ottawa’s record-high debt levels
The federal government incurred large deficits during the pandemic while debt per-person has reached historic highs and Canadians face the prospect of a higher tax burden in the future. However, not all of this record debt can be attributed to the pandemic, as the majority of money spent by Ottawa had nothing to do with COVID.
Federal gross debt (total liabilities) is projected to increase from 54 per cent (as a share of the economy) in 2019 to 72 per cent in 2021. The ratio is on track to grow, primarily because Ottawa ran consecutive deficits of more than $100 billion in 2020 and 2021 combined with a shrinking economy in 2020.
If you consider 2020, the year most severely affected by the pandemic, federal per-person debt reached a record height—at that point in time—of $48,764 (inflation-adjusted). But again, this record debt is not entirely the result of COVID emergency spending. When we exclude COVID-related spending, per-person debt would still have been at record highs, reaching $42,380 in 2020—that’s 43 per cent higher than per-person debt levels at the peak of the Second World War and 13 per cent higher than the previous year in 2019.
The debt situation did not get better in the two years that followed. In 2021, federal per-person debt reached a new record at $48,955. But COVID once again cannot be blamed for all of this debt accumulation. Without any COVID-related spending in 2020 or 2021, federal per-person debt would still have reached $41,340 in 2021—the fourth-highest amount in Canadian history. Clearly, federal debt was already on an upward trajectory and the pandemic only exacerbated the problem.
Now, in 2022, the federal government’s per-person debt level is $47,070, still more than 25 per cent higher than in 2019, the last year before the pandemic.
Of course, this debt accumulation does not come without costs. Many of these costs are deferred to the future but will still significantly impact the Canadian economy. A study published by the Fraser Institute measured the increases in personal income taxes Canadians will have to pay to keep pace with the interest costs on federal debt over their lifetimes.
The study finds that 16-year-old individuals will face an additional $29,663 in personal income tax payments over their lifetimes due to federal debt-servicing. Older age groups will face a much smaller burden in comparison. In fact, a 16-year-old can expect to pay 12 times the amount a 65-year-old will have to pay. Citizens aged 16 to 80 will (on average) pay an additional $10,498 in extra taxes due to federal interest costs.
While all Canadians will see increases to their tax burden from federal debt accumulation, young people will bear the brunt of the burden. This is why it’s important to hold Ottawa accountable when it unnecessarily finances spending with debt. Federal debt is a concern for all Canadians but especially for young people.
We cannot put all the blame on COVID for Ottawa’s record per-person debt levels. Increasing federal spending on programs and services that had nothing to do with the pandemic played an outsized role in increasing our debt and putting a significant burden on future generations of Canadians.