Interest payments are likely to be Justin Trudeau's most enduring legacy.
Budget 2024 revealed eye-watering statistics every Canadian should know.
Yesterday's federal budget released by Canadian Prime Minister Justin Trudeau and his finance Minister Chrystia Freeland is already being panned as a double down of the anti-growth, productivity-killing policies that have pushed the country into an inflationary crisis that has made life unaffordable for millions of Canadians.
Yesterday's budget added $40 billion to the federal debt in this fiscal year alone, with that figure ballooning in future years. In that, Ms. Freeland disappointed many who had hoped that she would deliver a budget that would signal the type of fiscal restraint needed to remove deficit spending as an inflationary accelerant.
But among the dozens of stories that will be written about the budget, one deserves special attention. And that is the amount of money this year's federal budget devotes to public debt charges - a technical way of saying the interest on debt that Mr. Trudeau's government has rapidly accumulated in the nearly nine years he's been in power.
Yesterday's budget forecasts that Canada will spend a staggering $338.4 billion over the next six years simply to pay the interest on the debt. Mr. Trudeau's budget doesn't include plans to pay off any of the principal, either. Instead, more and more will be added to it, further increasing interest costs in years to come.
This situation is a huge problem for several reasons.
The first is what public debt charges (interest payments) look like when expressed as a percentage of certain government revenue streams. For example, public debt charges are more than all of the revenue the federal government collects from the Goods and Services Tax (GST). The amount is about two-thirds of the tax the federal government collects from corporations or, about a quarter of all the tax it collects from personal income tax.
Now think about what all that debt Mr. Trudeau has accumulated that we're now paying this interest on has accomplished. Despite doubling the entire amount of debt accumulated in the country's history prior to his tenure, he has little to show for it. Canada has slipped into a major housing crisis. The healthcare system is on the brink of collapse. The federal government's ability to deliver core services has gotten worse (anyone who's tried to get a passport in the last few years or call Revenue Canada understands this). Canada's military is in shambles. Instead, Mr. Trudeau's debt spending expenditures are most noted for those associated with waste and scandal, like the ArriveCan and WE Charity scandals.
Now, think about pitching to Canadians to stay and work in Canada while paying the very high taxes that Mr. Trudeau has both imposed and raised. Paying high taxes to a government with a track record of misappropriation and delivering little while driving up interest charges on debt that delivers little is a tough sell.
Which leads to the next big problem - since Mr. Trudeau's government now has to pay so much simply to cover the interest charges on the debt, it means the federal government has less fiscal capacity to help build things like hospitals and roads, or pay down the principal on the debt that he's accumulated. It also means Canada cannot weather black swan events like the 2008 financial crisis, pandemics, up-ended trade agreements or war the same way it could over a decade ago.
And heaven forbid something like that happens in Canada's near future. If it did, the fragile house of cards Mr. Trudeau and Ms. Freeland's budget assumptions are based on is likely to collapse, making Canada's ability to make the interest payments on our debt even worse.
However, none of this should come as a surprise to Canadians. Mr. Trudeau blew the doors off his 2015 campaign promise to keep deficits low and balance the budget within a few years. His infamous "and the budget will balance itself" and "forgive me if I don't think about monetary policy" comments belied an ideological ignorance regarding the responsibility to ensure federal expenditures were made with great care. Yesterday's budget underscored this fact with a lot of red ink without having much in the way of positive outcomes to show for it.
Interest payments on debt will likely be the most enduring part of Mr. Trudeau's legacy as Canadian Prime Minister. It will be extremely difficult for future governments to untangle the Gordian knot of highly ineffective, scandal-laden, entrenched structural spending Mr. Trudeau has legislated over nearly nine years in government. From there, the country's lagging productivity will have to rebound enough to the point where future governments can even think about posting surpluses, which could go to things like paying down the principal on Mr. Trudeau's debt.
If this fiscal situation is Mr. Trudeau’s definition of generational fairness (read, the title of Budget 2024), Canada should shudder to think what inequity looks like.