April to Jan 2024 Deficit $25.7B
The Canadian Department of Finance is now reporting that the Federal government saw a $25.7B deficit between April and Jan 2024.
This is means the Government is on track to run a $34.1B annualized deficit, should spending occur at the same pace in 2024.
Interest Expense up $10B In Just 1 Year
The Government of Canada paid $10B (35.9%) more interest in the period of Apr to Jan 2024 than they did in the same period the year prior.
Given that the data below only represents 9 months of the year, we can infer that the Government of Canada is now likely paying somewhere in the range of $52B in interest per year.
And this will increase as bonds continue to roll over.
While its common knowledge that interest rates in Canada have increased rapidly over the last couple of years — what’s not as commonly known is how this will affect the Government of Canada.
In short, the current economic conditions mean that the Government of Canada’s interest expenses are expected to triple this decade.
Government of Canada’s Interest Payments Set to Surge 300% this Decade
In 2023, the Government of Canada owed $1.259 Trillion dollars, mostly to bondholders. The Parliamentary Budget Officer expects government debt to increase to $1.829 Trillion by 2029.
The problem is that not only is the total debt is set to increase, its that bonds work (sort of) like mortgages, in that they have an expiry dates where they “renew”.
Upon renewal, the interest rates are renegotiated back to market rates (this is known as maturity). As bonds renew into higher rates, the Government’s interest costs go up.
This combination of increasing renewal costs for existing debt, and ever-increasing additions to the total debt, means that the Government’s cost of borrowing has been surging recently.
In fact, the PBO now estimates that the Government of Canada paid 40% more interest year-over-year in both 2022-2023.
It also estimates that the Government of Canada will forced to payout $60 Billion in interest payments per year by 2029, which is triple the amount that was owed in 2021.
How much is $60 Billion?
$60 billion is more than the government currently spends on its Child Care Benefit program its Employment Insurance Program (including parental leaves), and its almost as much as it spends on its entire Old Age Security and Old Age Supplement programs. (see expenses below, in $B)
As of 2024, the Government of Canada is now spending over 10% of all of the money it collects simply to pay interest.
What’s clear is that not only do higher interest rates affect Canadians personally — they also affect Government entities.
These higher Government interest costs mean one of three things for Canadians: less service, more government borrowing or higher taxes. Afterall, the money needs to come from somewhere.
Lets see where the government steers the ship from here.
