Parents of infant who died in wrong-way crash on Ontario's Hwy. 401 were in same vehicle
Ontario’s Special Investigations Unit has released new details about a wrong-way collision in Whitby on Monday night that claimed the lives of four people.
Canadian consumer debt hit an all-time high of $2.32 trillion in the first quarter of 2023, according to a TransUnion report. However, Canada’s national debt has also been rising steeply, giving economists and government leaders cause for concern.
Today, I’ll share some facts and figures about Canada’s current national debt and where the government spends money, so you can better understand how federal debt and spending have changed over recent years.
Consumer debt is money owed by individuals for personal needs, whereas national debt is the total borrowing by a government for public purposes. They operate at different levels, with consumer debt impacting individual finances and national debt affecting a country's overall economic health.
The federal government reported a federal deficit of $1.13 trillion at the end of the 2021-2022 fiscacanadal year, an increase of 8.2 per cent from the previous fiscal year.
Adjusted for current inflation, Canada’s total provincial and federal debt increased from $1.1 trillion to $2.1 trillion between 2007-2008 and 2022-2023, according to a study by the right-wing think tank Fraser Institute.
Despite the government’s increased expenditure during the pandemic, this alone is not the primary cause behind the country’s debt problem.
In short, Canada’s increasing national debt was a problem long before the global pandemic.
The public seems to agree. A recent survey conducted by Ipsos for the Montreal Economic Institute found that 55 per cent of Canadians believe government spending is too high, while just 27 per cent believe it’s acceptable. Eight per cent believe spending is too low, and 9 per cent declined to answer, according to the survey.
The federal government posted a $1.5 billion surplus in April and May, the first two months of the fiscal year, thanks to increased revenue from EI premiums, higher interest rates, a carbon price hike, and additional income tax revenue. However, this will hardly put a dent in the overall $1.1 trillion federal debt owing.
Now, let’s take a quick look at how the government spends money, according to the 2021 federal spending report.
To give you a closer look, let’s take a quick look at the share of government expenses by category reported for 2021.
1. Social protection
Between 2008 and 2019, the federal government spent between 23 and 24 per cent of its revenue on social protection programs, such as EI and other low-income benefits. During the 2020 pandemic, this number jumped significantly to 31 per cent, as the government issued relief to Canadian residents and small businesses.
In 2021, however, the number dropped to 27 per cent as the economy began to reopen and Canadians returned to work.
2. Health
Between 2008 and 2019, the government spent between 23 and 25 per cent of its revenue on health care. Interestingly, this number dropped to 20 per cent in 2020 before rising back up to 24 per cent in 2021.
The reason for the sudden surprising drop in healthcare expenses during the 2020 pandemic could be due to Canadians staying at home and experiencing difficulty receiving healthcare, according to a study published in the Canadian Medical Association Journal.
3. General public services
In 2020, the federal government reported that it spent just 13 per cent of revenue on general public services, which include expenses like:
This category also includes interest payments on government loans.
Between 2008 and 2019, general public services accounted for between 16 and 18 per cent of the government’s share of expenses, indicating another pandemic-related decline in revenue in 2020. In 2021, however, this number increased to 15 per cent.
4. Education
Between 2008 and 2019, the government spent between 13 and 14 per cent of revenue on public education. Due to schools closing and the widespread adoption of online schooling during the pandemic, education expenses accounted for just 11 per cent of federal government expenditure in 2020.
In 2021, this number increased to 12 per cent, as students and teachers began returning to the classroom. The 2022 report has yet to be released, but I believe that education expenses will return to 13 or 14 per cent, as not all schools were fully open and operational as of 2021.
5. Economic affairs
Government spending on economic affairs such as budgeting and implementation of financial regulations accounted for just 8 to 9 per cent of federal spending between 2008 and 2019.
In 2020, this number dramatically increased to 15 per cent as the government struggled to provide financial relief and implement policies to help the country make it through the pandemic. In 2021, economic affairs accounted for 11 per cent of government expenditure, significantly lower than the year before but still higher than it’s been for over a decade.
6. Other functions
This category includes expenses related to:
Between 2008 and 2019, this expense category accounted for 13 to 14 per cent of government spending. During 2020 and 2021, the share of these expenses dropped to 10 per cent and 11 per cent respectively.
During times of economic crisis, such as pandemics, recessions, and wars, the national debt can fluctuate sharply as the federal government attempts to provide the necessary support for its residents.
For example, in 2020, the federal government collected 5.4 per cent less tax revenue than the previous fiscal year ($316.4 billion compared to $334.1 billion).
During the pandemic, total government expenses also increased considerably:
In times of economic crisis, the government often collects less tax revenue and incurs additional expenses, which can increase debt significantly. Governments often increase taxes or propose budget cuts in the following years to recuperate.
The true cost of the rising national debt may not be felt until future generations. If the country’s debt continues to increase out of control, national and international investors could lose faith in Canada’s economy.
To ensure a positive financial future for its residents, it’s imperative that Canada gets its national debt under control before it’s too late.
Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers on his Wealth Awesome website.
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