National
Federal debt interest will consume nearly one quarter of income tax revenue in 2024
From the Fraser Institute
By Grady Munro and Jake Fuss
The Trudeau government will table its next budget on April 16. In recent years, the government has overseen a substantial rise in the amount of interest it must pay to service federal debt, reversing a long-standing trend of interest costs declining relative to personal income tax revenues. By 2024/25, according to projections, nearly one in four dollars of personal income tax revenue will go towards debt interest.
Just like how individuals must pay interest when they take out a mortgage, the government must also pay interest when it borrows money. These interest payments represent taxpayer dollars that don’t go towards programs or services for Canadians.
When interest costs rise faster than the government’s ability to pay—i.e. the revenues it brings in—the government will face pressure to take on more debt to maintain funding for programs and services. And by taking on more debt, this places additional upward pressure on interest costs (all else equal) and the cycle repeats.
A useful way to track this is to measure debt interest costs as a share of federal personal income tax (PIT) revenues, which represent Ottawa’s single-most important revenue source. In 2024/25, they’re expected to comprise just under half (46.4 per cent) of total revenues and therefore provide a useful gauge of the government’s ability to pay interest on its debt. As such, the chart below includes projections for federal debt interest costs as a share of PIT revenues for the two decades from 2004/05 to 2024/25.
As we can see from the chart, for many years federal debt interest costs had been declining as a share of Personal Income Tax revenues. In 2004/05, 34.6 per cent of PIT revenues went towards servicing federal debt, but by 2015/16 that share had fallen to 15.1 per cent. In other words, during the Trudeau government’s first year in office, federal interest costs consumed less than one in six dollars of personal income tax revenue paid by Canadians. Interest costs as a share of PIT revenues continued to fall for the next several years, down to a low of 11.7 per cent in 2020/21. However, this marked the end of the decline, and the years since have seen rapid growth in debt interest costs that far exceeds growth in PIT revenues.
In the two years from 2020/21 to 2022/23, federal interest payments rose from 11.7 per cent of PIT revenues to 16.8 per cent. And by the end of the upcoming fiscal year in 2024/25, debt interest payments will reach a projected 23.4 per cent of PIT revenues. In four years, debt interest payments are expected to have gone from consuming about one in nine dollars of PIT revenue to nearly one in four dollars. Put differently, nearly one quarter of the money taxpayers send to Ottawa in the form of personal income taxes will not go towards any programs or services in 2024/25.
The causes of this sudden rise in interest costs as a share of PIT revenues are the combined effects of a substantial accumulation of debt under the Trudeau government, and a recent rise in interest rates. From 2015/16 to 2022/23, the Trudeau government added $820.7 billion in gross federal debt, and by 2024/25 total debt will reach a projected $2.1 trillion—roughly double the amount inherited by the current government. Meanwhile, from 2022 to 2023, the Bank of Canada increased its policy interest rate from a low of 0.25 per cent to the current rate of 5.00 per cent.
Simply put, federal debt interest costs have risen and are expected to eat up almost one quarter of federal PIT revenues by 2024/25. To help prevent taxpayers from devoting an even larger share of their tax dollars towards debt interest, the Trudeau government should cease its heavy reliance on borrowing in this year’s federal budget.
Authors:
“If Ottawa had it’s way Albertans would be left to freeze in the dark”
The ineffective federal net-zero electricity regulations will not reduce emissions or benefit Albertans but will increase costs and lead to supply shortages.
The risk of power outages during a hot summer or the depths of harsh winter cold snaps, are not unrealistic outcomes if these regulations are implemented. According to the Alberta Electric System Operator’s analysis, the regulations in question would make Alberta’s electricity system more than 100 times less reliable than the province’s supply adequacy standard. Albertans expect their electricity to remain affordable and reliable, but implementation of these regulations could increase costs by a staggering 35 per cent.
Canada’s constitution is clear. Provinces have exclusive jurisdiction over the development, conservation and management of sites and facilities in the province for the generation and production of electrical energy. That is why Alberta’s government is referring the constitutionality of the federal government’s recent net-zero electricity regulations to the Court of Appeal of Alberta.
“The federal government refused to work collaboratively or listen to Canadians while developing these regulations. The results are ineffective, unachievable and irresponsible, and place Albertans’ livelihoods – and more importantly, lives – at significant risk. Our government will not accept unconstitutional net-zero regulations that leave Albertans vulnerable to blackouts in the middle of summer and winter when they need electricity the most.”
“The introduction of the Clean Electricity Regulations in Alberta by the federal government is another example of dangerous federal overreach. These regulations will create unpredictable power outages in the months when Albertans need reliable energy the most. They will also cause power prices to soar in Alberta, which will hit our vulnerable the hardest.”
Finalized in December 2024, the federal electricity regulations impose strict carbon limits on fossil fuel power, in an attempt to force a net-zero grid, an unachievable target given current technology and infrastructure. The reliance on unproven technologies makes it almost impossible to operate natural gas plants without costly upgrades, threatening investment, grid reliability, and Alberta’s energy security.
“Ottawa’s electricity regulations will leave Albertans in the dark. They aren’t about reducing emissions – they are unconstitutional, ideological activist policies based on standards that can’t be met and technology that doesn’t exist. It will drive away investment and punish businesses, provinces and families for using natural gas for reliable, dispatchable power. We will not put families at risk from safety and affordability impacts – rationing power during the coldest days of the year – and we will continue to stand up for Albertans.”
“Albertans depend on electricity to provide for their families, power their businesses and pursue their dreams. The federal government’s Clean Electricity Regulations threaten both the affordability and reliability of our power grid, and we will not stand by as these regulations put the well-being of Albertans at risk.”
Related information
- Conference Board of Canada socio-economic Impacts of Canada’s 2030 Emissions Reduction Plan – (April 2025)
- Alberta Electric System Operator’s position on Canadian Energy Regulations
Oh, Canada
We find it endlessly fascinating that most Canadians believe they live in a representative democracy, where aspiring candidates engage in authentic politicking to earn their place in office. So accustomed are Canada’s power brokers to getting their way, they rarely bother to cover their tracks. A careful reading of the notoriously pliant Canadian press makes anticipating future events in the country surprisingly straightforward.
Back in December, when Pierre Poilievre was given better than 90% odds of replacing Prime Minister Justin Trudeau—and Mark Carney was still just an uncharismatic banker few had heard of—we engaged in some not-so-speculative dot-connecting and correctly predicted Carney’s rise to the top spot. Our interest was driven by the notoriously rocky relationship between Ottawa and the Province of Alberta, home to one of the world’s largest hydrocarbon reserves, and how Carney’s rise might be a catalyst for resetting Canada’s energy trajectory. In a follow-up article titled “The Fix Is In,” we laid out a few more predictions:
“Here’s how the play is likely to unfold in the weeks and months ahead: Carney will be elected Prime Minister on April 28 by a comfortable margin; [Alberta Premier Danielle] Smith will trigger a constitutional crisis, providing cover for Carney to strike a grand bargain that finally resolves longstanding tensions between the provinces and Ottawa; and large infrastructure permitting reform will fall into place. Protests against these developments will be surprisingly muted, and those who do take to the streets will be largely ignored by the media. The entire effort will be wrapped in a thicket of patriotism, with Trump portrayed as a threat even greater than climate change itself. References to carbon emissions will slowly fade…
In parallel, we expect Trump and Carney to swiftly strike a favorable deal on tariffs, padding the latter’s bona fides just as his political capital will be most needed.”
The votes have barely been counted, yet the next moves are already unfolding…
“Alberta Premier Danielle Smith says she’ll make it easier for citizens to initiate a referendum on the province’s future in Canada, after warning that a Liberal win in Monday’s election could spur a groundswell of support for Alberta separatism. Smith said on Tuesday that a newly tabled elections bill will give everyday Albertans a bigger say in the province’s affairs.
‘(We’re giving) Albertans more ways to be directly involved in democracy, and to have their say on issues that matter to them,’ Smith told reporters in Edmonton.
If passed, the new law would dramatically lower the number of signatures needed to put a citizen-proposed constitutional referendum question on the ballot, setting a new threshold of 10 per cent of general election turnout — or just over 175,000, based on Alberta’s last provincial election in 2023.”
“US President Donald Trump said on Wednesday that Canadian Prime Minister Mark Carney is looking to make a trade deal and will visit the White House within the next week. Trump said he congratulated Carney on his election victory when the Canadian leader called on Tuesday.
‘He called me up yesterday – he said let’s make a deal,’ Trump told reporters at the White House after a televised Cabinet meeting.”
Remember where you read it first.
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