Canada's debt charges are ballooning as Freeland tables a gloomy fall economic statement

The cost to service the federal government's sizeable debtload will spike in the years ahead — and those public debt charges will eat up much more of Ottawa's revenue than they have in recent years, according to Finance Minister Chrystia Freeland's fall economic statement, tabled today.

Freeland's document suggests Canada will avoid a recession but predicts economic growth will slow to a crawl. Unemployment is set to rise nearly a fully percentage point next year and tens of thousands more people could be out of work.

Freeland wants to spend about $20.8 billion more over the next six years than the federal government initially projected. Freeland is pitching the increase as smaller than in years' past and a sign of fiscal prudence. Most of the new spending is earmarked for new housing initiatives, such as low-cost loans to builders.

The federal Liberal government has run a deficit every year since it was elected. It posted even bigger deficits during the COVID-19 pandemic as it scrambled to shore up an economy on the ropes during an unprecedented health crisis.

Now, with interest rates at a 20-year high, the cost to borrow all that money has spiked from $20.3 billion in 2020-21 to $46.5 billion in this fiscal year. The debt service charges will march even higher still in the years ahead. Carrying the debt is expected to cost the federal treasury $60.7 billion a year in 2028-29, according to the economic statement.

That means debt service charges are now among the most costly line items in the federal budget.

To put that in perspective, Ottawa will spend $28.9 billion on the Canadian Armed Forces this fiscal year — about $18 billion less than what the government will send in payments to the bankers and bondholders who hold Canada's debt.

The government's debt costs this year are $20 billion higher than the sum it has earmarked for one of its signature policies — the Canada Child Benefit, which sends cheques to families with kids.

The debt charges are also more than double what the employment insurance (EI) program will cost Ottawa this year. The $2.6 billion increase to the cost of servicing the debt this year is roughly equal to all of the new measures Freeland announced today for 2023-24 ($2.7 billion). Some of the new measures are meant to address the housing crisis and persistent affordability issues.

Kevin Page, the former parliamentary budget officer, said it was "inevitable" that debt servicing costs would rise once the government decided to backstop the entire economy during the pandemic. "There was an enormous increase in debt. There were really massive increases in debt. Now it's going to come back to bite us," he told CBC News.

The government has less fiscal leeway now to address issues like the housing supply crunch because it's spending so much more on servicing the debt, Page said.

"The government is losing fiscal space because of rising debt interest charges relative to GDP. Debt is growing and it's not insignificant. When people say, 'I want to do this' and 'I want to do that,' the government just doesn't have the fiscal room. It's getting eaten up by effectively by the credit card bills," he said.

While the amount of new spending in this economic statement is lower than it has been in past budgets or fiscal updates presented by the Trudeau government, Freeland's plan still includes $20.8 billion more for new measures over the next six years than what she laid out in the spring budget.

The deficit for this fiscal year is projected to be $40 billion — almost exactly what Freeland said it would be in the spring budget.