Owe Canada: Everything you need to know about Canada’s $1.28 trillion (and counting) federal debt

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Many countries, including Canada, have used debt to GDP as a fiscal anchor — a rule or guardrail intended to keep a government from letting spending get out of control.

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Canada’s federal debt-to-GDP ratio peaked in 1996 at 67 per cent before the Chretien-era reforms, but for the most part has been on the decline since then.

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The PBO, however, issued a stark warning in September, telling a committee of Parliamentarians that Canada’s fiscal situation was “unsustainable” and warned the debt-to-GDP ratio is expected to remain above 43 per cent over the medium-term.

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Private sector forecasts have been similar.

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The Royal Bank of Canada projects Canada’s federal debt-to-GDP will hit 42.2 per cent in 2025-2026 and will remain above 42 per cent until 2030, where it will fall to 41.9 per cent.

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While Trudeau had committed to reduce the debt-to-GDP ratio as a fiscal anchor in Budget 2024, current Finance Minister François-Philippe Champagne and Carney have made no such assurance, with Champagne only vowing that deficit-to-GDP ratio will decline over the medium term.

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The federal government has often touted Canada’s net debt-to-GDP position as standing out among its G7 peers, it depends in part on how you measure it.

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The IMF’s calculation of net-general-debt-to-GDP, for example, puts Canada at 13.3 per cent, by far the best in the G7.

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However, this way of measuring Canada’s debt position subtracts the pension fund assets such as CPP and QPP from gross debt.

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Canada’s gross general debt-to-GDP, which includes other levels of government, stood at 113.9 per cent according to the IMF, which still puts Canada among the lowest in the G7, but presents a much more alarming debt position.

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Is Canada’s debt sustainable?

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There is a general consensus among analysts that Canada’s fiscal credibility remains strong, with the country holding strong credit ratings including AAA from S&P, Aaa from Moody’s and AA+ from Fitch, but there are risks entering the picture.

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In July, Fitch reaffirmed Canada’s credit rating based on Canada’s “strong governance, high per-capita income and a macroeconomic policy framework that has delivered steady growth and low inflation.”

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However, Fitch warned of factors that could lead to a downgrade, including a “macroeconomic shock” brought on by the trade war and a “material rise in the general government debt/GDP ratio in the medium term, for example from a marked widening in the budget deficit or weakening in GDP growth.”

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In a recent survey conducted by the Business Council of Canada, experts and business executives backed Carney’s plans to invest in the economy.

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However, they also warned that while Canada’s fiscal credibility remains strong, its fiscal discipline has eroded since the 1990s and 2000s. They recommended the federal government commit to a deficit reduction target, a declining debt-to-GDP ratio and declining debt-servicing ratio in the upcoming budget.

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The PBO issued a stark warning in September, telling a committee of Parliamentarians that Canada’s fiscal situation was “unsustainable” and warned the debt-to-GDP ratio is expected to remain above 43 per cent from 2026 to 2031, with no declining trend.

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What about debt at other levels of government?

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While the focus is often on the federal government, Canada’s territorial, provincial and local governments carry substantial debt burdens too.

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Statistics Canada’s measure of the total liabilities of territorial, provincial and local governments rose to $1.487 trillion in 2023, a 4.3 per-cent increase from the year before.