Canada is staring at a mounting fiscal crisis, one that too many politicians would rather ignore than confront. Both the federal government and the provinces are piling on debt at an alarming pace, and the political appetite to make the hard choices cutting spending or raising taxes seems virtually nonexistent.
BMO’s numbers tell the story clearly: provincial deficits are ballooning. What was a $10.6 billion shortfall in 2023–24 is projected to nearly triple this year, and could explode to almost $45 billion by 2025–26. These are not one-off pandemic numbers anymore this is the new normal. Spending continues to outstrip revenue, and provinces are relying on debt like an endless credit card.
Meanwhile in Ottawa, things are no better. Yes, the federal deficit has technically shrunk from nearly $62 billion last year to $46 billion this year. But with promises of expanded social programs and a massive hike in military spending to meet NATO’s 2 percent target, the C.D. Howe Institute warns that Canada is barreling toward a staggering $92 billion federal deficit in 2025–26.
The key problem is that debt is growing faster than the economy. Canada’s federal net debt-to-GDP ratio was a manageable 32.7 percent before the 2008 recession. Today, it sits at 45.7 percent. Provincial debt has jumped as well, from 20.5 percent to 29.1 percent. Provinces like Newfoundland and Labrador (44.9 percent), Quebec (38.6 percent), and Ontario (36.3 percent) are already in dangerous territory. Even provinces traditionally praised for fiscal prudence, like B.C. and Alberta, are seeing their debt climb rapidly.
What’s more concerning is that governments are acting as if this is sustainable. British Columbia calls its debt levels “affordable relative to peers,” while Alberta banks on energy revenue to keep things afloat. Quebec leans heavily on equalization payments, effectively funded by taxpayers across the country, to prop up its high-spending model. And Ontario, Canada’s most indebted province, will spend $16.2 billion this year just to service its debt more than it will on postsecondary education.
This is not just a numbers game. Rising interest payments eat into funding for schools, hospitals, and infrastructure. Every extra dollar that goes to bondholders is a dollar not going to Canadians. Already, federal interest payments have shot up from about $20 billion in 2020–21 to nearly $54 billion this year, and provincial payments have surged from $29.4 billion to nearly $39 billion in the same timeframe. With high interest rates here to stay for the foreseeable future, these costs will only rise.
The blunt truth is that Canada is edging closer to a debt wall. The bonds governments issued during the pandemic at rock-bottom rates are coming due, and refinancing them at today’s higher rates will be brutally expensive. And yet, instead of preparing for this storm, governments are cutting taxes, expanding benefits, and making new promises they can’t afford.
Economist Richard Dias is right: no politician wants to campaign on raising taxes or cutting services. But pretending we can avoid the pain only makes the eventual reckoning worse. As Jack Mintz warns, Canada is starting to look dangerously like it did in the 1980s, when government debt neared 100 percent of GDP and Ottawa had no choice but to slam on the brakes.
We can either act now, with deliberate, measured adjustments, or we can wait until the debt spiral forces a crisis on us. But make no mistake the bill is coming due, and younger generations will be stuck paying it.
