Interest Cost Risks to Government Budgets
— Published on June 29, 2021
- This essay calculates the change in government interest costs and budget balances if interest costs return to their 2019-20 levels.
- Estimates are calculated for 2021-22 gross debt levels for each of the provinces and the federal government. Interest costs as a share of gross debt from 2019-20 are then applied to the estimated gross debt levels for 2021-22.
- The federal and nine provincial governments (except New Brunswick) all experience an increase in their interest costs. The largest dollar value and percentage increase is recorded by the federal government; interest costs rise from a budgeted $22.1 billion in 2021-22 to $35.2 billion, an increase of 59.4 percent. The smallest percentage increase is recorded by Quebec whose costs increase by 3.4 percent.
- Cumulatively, interest costs and deficits would increase by a total of $17.0 billion in 2021-22 should interest costs return to their 2019-20 levels.
- The forecasted increase in federal interest costs for 2021-22 ($13.1 billion) assuming interest costs return to their 2019-20 level represents 77.4 percent of the total increase in interest costs for the federal and provincial governments.
- Based on the risks assessed in this essay, governments across the country should employ much more caution regarding spending and borrowing, particularly in Ottawa.
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