By trimming down its debt, Canada could fatten the paycheques of average workers — by about $2,100 a year. That’s not a pipe dream; it’s the key takeaway from a new study by the Fraser Institute that deserves more attention than it’s getting.
The argument is straightforward: reduce government debt relative to GDP over the next five years, and labour productivity will rise — lifting incomes along the way. According to the study, authored by economist Ergete Ferede, productivity could increase by about 1.6 percent by year five if we return to pre-pandemic debt levels. That translates to a $1.01 boost in output per labour hour and, for the average Canadian worker, a much-needed $2,100 raise.
It’s a compelling case for fiscal discipline. We often hear abstract talk about deficits and debt, but rarely do we connect those macroeconomic figures with everyday realities like take-home pay, housing affordability, or even groceries. This report draws a clear line: more government borrowing today can mean smaller paycheques tomorrow.
During the pandemic, Canada understandably ramped up spending. But that emergency response came at a cost — the country’s gross debt ballooned to roughly 107 percent of GDP by 2023. Among 38 advanced countries, we’re now the seventh most indebted relative to the size of our economy. Worse still, we top the list among the G7.
Debt like that doesn’t just sit idle. It drags on the economy by siphoning resources toward interest payments and away from productivity-enhancing investments. Ferede’s study shows that even a 10-point drop in the debt-to-GDP ratio could boost the growth rate of labour productivity by just over 1 percent. That’s significant in a country where productivity growth has been sluggish for years.
It’s not rocket science. More debt means more taxes or more inflation in the future — both of which erode workers’ real earnings. Less debt means governments have more fiscal flexibility, businesses face fewer uncertainties, and workers can finally see the needle move on their wages.
Of course, reducing debt doesn’t mean slashing essential services or ignoring economic inequalities. It means being smarter about spending and reining in the temptation to rely on deficit financing as a long-term strategy. Deficits may be politically convenient, but they come with long-term costs that land squarely on the shoulders of Canadian workers.
The path forward is clear: If we want higher productivity, stronger wage growth, and a better standard of living, we can’t keep kicking the debt can down the road. Reducing government debt isn’t just sound fiscal policy — it’s a pay raise waiting to happen.
