The Canadian debt clock
Debt per taxpayer
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Dear Minister of Finance,
I am writing to let you know about my deep concern regarding the state of Canada’s public finances. As you know, Canada’s federal debt has now reached over 1,048 billion dollars. This is the equivalent of $26,839 of debt per Canadian, or $33,865 per taxpayer who fills out a tax return.
The Canadian government has to stop continually increasing the debt. Since the tax burden is already very high, the solution must involve a reduction in government expenditures so that we can eliminate the deficit and then start paying down the debt.
Thank you in advance for your time and attention.
Our Canadian “Debt Clock” shows the growth of the federal debt in real time. This is the net debt, namely liabilities (the gross debt) minus financial assets. Given the relatively non-liquid nature of the government’s non-financial assets, it would not be economically sound to subtract them from liabilities.
Based on data provided by the Canadian Department of Finance in its November 30, 2020 economic update, we estimate that the debt will increase by: $127 billion by March 31, 2021, the equivalent of $1.05 billion per day, $728,880 per minute, or $12,148 per second.
Evolution of Canada’s debt
Questions & Answers about Canada's Debt
1. Is there a limit to this debt?
Contrary to Quebec (see the Balanced Budget Act) and all the other provinces as well, there is no legislation restraining the federal government’s indebtedness. The federal government is not required to run budget surpluses. The Finance Minister, however, is required to respect the Financial Administration Act, which currently sets a borrowing ceiling of $1.168 trillion; this includes amounts borrowed by Crown corporations and Canada’s mortgage bonds guaranteed by the Canada Mortgage and Housing Corporation. According to the Borrowing Authority Act, the Minister can borrow extra amounts under exceptional circumstances, with the approval of Parliament.
2. Who are the creditors of this debt?
The debt is made up of government bonds held by individuals and financial institutions, mostly Canadian (around two-thirds of Canadian government securities are held by Canadian investors, such as insurance companies, pension funds, and financial institutions). However, debt is sometimes issued directly by the Bank of Canada in order to be able to quickly find needed funding in crisis situations—notably in 2020 during the COVID-19 pandemic.
3. What is the different between the gross debt, the net debt, and the accumulated deficit?
The gross debt is the sum of accrued liabilities and the interest-bearing debt, which comes from past deficits that had to be financed with loans as well as debts connected to retirement plans. It is called “gross” because it does not take into account the financial assets held by the federal government.
Subtracting these financial assets from the gross debt leaves the net debt.
Finally, the government’s non-financial assets can be subtracted from the net debt, like the buildings and infrastructure it owns, to obtain the accumulated deficit, also commonly called the “federal debt.”
4. Is there reason to worry about the federal debt?
If the federal government continues to go into debt at the current rate, debt service costs will eventually increase. Indeed, as interest rates return to more typical levels from historic lows, and as the debt increases, federal interest payments will rise rapidly. As interest comes to make up a larger portion of the budget, the government will have fewer resources available for some of its programs. Moreover, the government’s capacity to deal with future crises will be reduced, and its credit rating may deteriorate. Actually, this rating was already downgraded in June 2020. If the federal government wants to create an environment that is favourable to growth and to the well-being of future generations, responsible budget management is essential.
5. What are the federal government’s main sources of revenue and expenditures?
The federal government’s revenue comes mainly from personal and corporate income taxes, from the goods and services tax, and from contributions to social insurance plans.
The federal government’s expenditures include transfers to individuals (notably through the Canada Pension Plan and Employment Insurance), transfers to the provinces (notably through equalization payments and the Canada Health Transfer), as well as spending on goods and services in support of the government’s activities. Another large federal government expense is debt service payments, which is to say payments made to cover the interest on the federal public debt.
6. How is the debt of Crown corporations accounted for on the government’s balance sheet?
The assets and liabilities of certain Crown corporations are included on the government’s balance sheet (under gross assets and gross liabilities), and those of other Crown corporations are excluded. It all depends on the kind of corporation.
In general, the gross debt of enterprise Crown corporations is excluded from the federal debt because these corporations are required to repay their debts using their own revenues rather than requesting parliamentary appropriations. In fact, since it does not wish to support Crown corporations that lose money, the government expects many of them to be financially autonomous, and even pay a “dividend” to the public purse.
Some of these nonetheless borrow funds directly from the public treasury through the Crown Borrowing Program. On the government’s balance sheet, these loans are treated as assets. In case of payment default, however, the government would be required to pay back their loans.