Canadians heard a lot about a Liberal “lost decade” from the Conservatives during this year’s federal election campaign.
The Tories pointed to surging government and household debt, weak economic growth, nationwide housing deficits, and crumbing infrastructure as evidence of 10 years of Canada falling behind.
A new study from the Fraser Institute shows that the notion of a “lost decade” is more than just campaign rhetoric.
One area in which Canada was a global leader before the sorry developments of the past decade was when it came to the nation’s finances. Debt levels were relatively low, and government spending was largely held in check.
But no more.
The Fraser Institute’s work shows just how far Canada has fallen when it comes to the health of government finances, both in Ottawa and in provincial capitals across Canada.
Back in 2014, just before the federal Liberals took over in Ottawa and when nine of the present 10 provincial governments were led by different parties than they are now, total government spending in Canada represented 38.4 per cent of the national economy. A decade later, that number jumped to 44.7 per cent.
Government debt shows an even sorrier trend over the same period.
From 2014 to 2024, government debt as a percentage of Canada’s GDP surged from 85.5 per cent to 110.8 per cent.
Overall, that’s a 6.3 per cent increase in government spending and a stunning 25.2 per cent increase in government debt as a share of Canada’s national economy.
How does that compare with Canada’s G7 counterparts? Both in terms of government spending and government debt, Canada’s finances deteriorated at the fastest rate in the G7.
Canada’s our finances deteriorated at a faster rate than even the United States during the Trump and Biden administrations and the United Kingdom as the country navigated Brexit.
What are the implications of rising government debt? Studies have shown that a rising debt-to-GDP ratio puts “upward pressure on long-term interest rates, which can raise the costs of borrowing for both government and the private sector.”
In turn, this leads to higher tax burdens on families and lower private sector investment, both of which are barriers to economic growth.
Given that tax burdens on Canadian middle-class families have increased substantially in recent years and Canada is experiencing some of the worst real per capita GDP growth in the OECD, the nation is already experiencing exactly what these studies warned about.
What’s causing surging debt and higher taxes? Government spending, which, as the Fraser Institute Report shows, grew at the fastest rate in the G7.
With Canada’s debt-to-GDP ratio now exceeding 100 per cent, Canada is entering dangerous waters. Both federal and provincial governments never publicly recognize the size of Canada’s debt problem, as the federal government only ever focuses on the federal debt and the provinces only ever focus on their own debt situations.
But, make no mistake, there’s only one taxpayer. Canadian taxpayers are on the hook for all this government debt, whether it’s been piled up by Parliament Hill, the National Assembly, or provincial governments across the country.
How can Canada’s governments start to reverse this decade of decline?
The clear solution is to implement a so-called pay-as-you-go law. It’s time for our politicians to have to make tough decisions. If they want to increase government spending in one area, our politicians should have to reduce spending somewhere else.
This is precisely what households must do. And, to dig out of the hole Canada’s political leaders have been digging over the past 10 years, this is what our leaders must do.
Right now, not a single provincial government nor the federal government is running anything close to a genuinely balanced budget. To ensure these numbers don’t collapse even further, Canada’s politicians must act with urgency to rein in spending, get debt levels down, and free up more room for households and businesses to once again become the primary drivers of the national economy.
Jay Goldberg is the Canadian Affairs Manager at the Consumer Choice Center. He previously served as the Ontario Director at the Canadian Taxpayers Federation and a policy fellow at the Munk School of Public Policy and Global Affairs. Jay holds a Ph.D. in Political Science from the University of Toronto.
