Canada’s Federal Debt Crisis: A Growing Concern for the Nation’s Future

As of the 2024-25 fiscal year, Canada’s total market debt is projected to surpass a staggering $1.4 trillion. This figure represents not only the government’s borrowing but also a growing concern for its long-term economic stability. With Canada’s debt increasing by over $100 million daily and more than $1,200 in interest paid every second, the Liberal government faces mounting criticism for failing to implement responsible fiscal spending. In this article we’ll examine the challenges posed by Canada’s escalating debt, the consequences of inaction, and the urgent need for reform.

National debt refers to the money a government owes its creditors, accumulated through budget deficits. While borrowing is often necessary to stimulate growth or weather economic downturns, unchecked debt can lead to dire consequences.

Canada has a complex financial “soup,” where its economy, represented by interconnected financial markets, relies on oversight to maintain stability. Excessive public debt, however, restricts this oversight and risks overheating the “soup,” leading to financial crises.

The Liberal government, led by Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland, has been criticized for its inability to rein in spending. Freeland has repeatedly delayed debt-reduction goals, with projections showing Canada’s debt-to-GDP ratio continuing to rise for at least two more years. These delays, coupled with outsized spending during the COVID-19 pandemic, have raised alarms among economists and citizens alike.

Excessive national debt imposes significant challenges, including:

Economic Instability: High levels of debt increase the risk of financial crises. Historical data shows that half of the 500 debt accumulation episodes since 1970 were linked to economic downturns. These periods saw per capita output drop by 6–10% and investments weakened by 15–22%.

Burden on Future Generations: Rising debt translates to higher interest payments, which divert funds from essential services like healthcare and education. Without action, future Canadians may face reduced public services and higher taxes.

Currency Devaluation: In the 1990s, Canada’s fiscal mismanagement led to its dollar being mockingly referred to as the “Northern Peso.” A similar fate could await if debt continues to balloon unchecked.

Loss of Economic Credibility: Comparisons to heavily indebted nations like Greece or Argentina underscore the potential consequences of fiscal irresponsibility, including austerity measures, social unrest, and economic stagnation.

Canada can draw lessons from other nations facing debt crises:

Europe’s Debt Crisis: Countries like Greece and Portugal faced harsh austerity measures and economic turmoil after their debts were downgraded to junk status.

Argentina: President Javier Milei’s drastic cuts to public spending aim to curb the nation’s 211% inflation rate but have caused significant social and economic upheaval.

While Canada’s net debt-to-GDP ratio remains relatively low at 13.28%, its gross debt-to-GDP ratio of 104.7% is among the highest in the G7. This duality reflects a troubling vulnerability: while Canada’s financial assets offset some liabilities, its high gross debt reveals a systemic risk that cannot be ignored.

Despite mounting evidence of fiscal mismanagement, the Liberal government has failed to present a coherent plan to address Canada’s debt crisis. Chrystia Freeland has repeatedly postponed the fall economic statement, drawing criticism from opposition leader Pierre Poilievre. Freeland’s assurances of Canada’s “strong fiscal position” ring hollow against the backdrop of missed deficit targets and delayed transparency.

Critics argue that the Liberals’ fiscal policies prioritize short-term political gains over long-term economic stability. Programs like the failed green technology scheme, plagued by ethical violations and inefficiencies, exemplify the government’s missteps. Meanwhile, new spending commitments for defense and affordability measures further strain Canada’s fiscal position.

Addressing Canada’s debt crisis requires a multi-faceted approach:

Fiscal Discipline: The government must prioritize reducing deficits through prudent spending cuts and streamlined operations. This includes revisiting costly programs and eliminating inefficiencies.

Economic Growth: Sustainable economic growth is essential to reducing the debt-to-GDP ratio. Policies that encourage private investment, innovation, and job creation should be prioritized.

Transparent Governance: The Liberal government must provide regular and detailed fiscal updates to rebuild public trust. Transparency is critical to ensuring accountability and fostering confidence in Canada’s economic future.

Debt Management Tools: Strategies like inflation control, targeted tax reforms, and financial sector adjustments can help stabilize debt levels without compromising economic growth.

Canada’s debt crisis is not just an economic issue—it’s a test of leadership and foresight. Failure to act risks undermining the nation’s prosperity and leaving future generations with an unsustainable fiscal burden. As Poilievre aptly put it, “Justin Trudeau has completely lost control of our finances.” The time for action is now.

By adopting responsible fiscal policies and embracing transparency, Canada can chart a path to economic stability. But without decisive leadership, the country may once again find itself at the mercy of external shocks and internal vulnerabilities—a fate no Canadian should accept.